5 mistakes you should avoid after paying off credit card debt

From running up debt again to not using your card at all, these errors can cost you

Dan Rafter
Personal Finance Writer
Specializes in mortgages, credit and credit scores

Mistakes you should avoid after paying off credit card debt

You’ve worked hard, paying hundreds of dollars extra each month to chip away at the credit card debt you ran up. Now you’ve paid it off. It’s time to celebrate, right? 

Sure. But it’s also time to be careful.

You don’t want to fall into some of the common traps that consumers make after paying off their credit card debt. It’s far too easy to start running up those cards again – or hurt your credit as you try to stay away from them.

Here are five mistakes to avoid if you want to keep those cards at zero each month, all while maintaining a healthy credit profile.

5 mistakes after paying off credit card debt – and how to avoid them

  1. Building up card debt again. Create a household budget that includes income and expenses to prevent overspending again.
  2. Ditching the benefits of a cash lifestyle. Make sure you have the cash to pay for all credit card purchases, or pay them online right after you make them.
  3. Not building an emergency fund. Set aside the same amount of money you did to pay off card debt, or at least part of it, to have cash at the ready for any emergencies.
  4. Vowing to never use credit again. Use your cards responsibly, keeping your balances low and paying them off in full at the end of the month, to rebuild your credit.
  5. Closing your credit card accounts. This will hurt your credit. Keep your cards open but leave them at home, or put them in ice, should they tempt you to overspend.

1. Building up card debt again

William Frazier, owner of debt counseling service Clean Slate Credit in Montgomery, Alabama, said that while paying off your credit card debt is a positive step, this work won't amount to much if you don't also change your spending habits.

Even after paying off debt, too many consumers simply build their credit card debt back up again, Frazier said. They mistakenly believe they'll be able to pay off a big purchase in full once their payment is due.

But when their credit card bill arrives? They don't have enough cash to pay off their purchase entirely. They carry a balance that only grows as they continue to charge what they consider “must-have” items they can't afford.

“People think they'll use their cards better now that they've paid off their debts,” Frazier said. “But then they start making just the minimum payments like they did before.”

Frazier said the problem is cardholders still have the same mindset. “They fall into the same trap.”

See related: 'FOMO,' 'likes' and card debt: How Facebook might lead you to overspend


Tip: Before you even think about using cards again, Frazier recommends you create a household budget that includes your monthly income and expenses. This budget will help you know how much you can spend on everything, from transportation to clothing to restaurant meals. Knowing you can’t spend, for example, more than $100 a month on restaurants, will boost the odds you won’t overcharge on eating out.

2. Ditching the benefits of a cash lifestyle

Many promise to live a cash-based lifestyle after they pay off their credit card debt. They resolve to only buy items when they can afford to pay for them in cash. Or they promise they’ll only charge items if they know they can pay off their credit card balances in full at the end of each billing cycle.

Sticking to these promises, though, can prove challenging.

Xavier Epps, chief executive officer and founder of Washington, D.C.-based XNE Financial Advising, said that too many clients never learn how to live that cash-based life, even after putting in the work to pay off their credit card debt.


Video: Curb emotional spending in 4 steps

“I've worked with clients who were extremely aggressive in paying off their debt, eliminating their debt in 18 or 24 months," Epps said. “They paid of tens of thousands of dollars in this time. What they forget is that after that is done, there is another step: It's time to learn how to live on a cash basis.”

Sometimes clients overcharge credit cards to accumulate rewards points or free airline miles, Epps said. Others simply don't want to wait to purchase that new flat-screen TV or laptop computer until they have enough cash to buy it.

“The temptation is always there to overspend,” Epps said.

See related: Using credit cards for everything has risks, rewards


Tip: As Epps said, there’s nothing wrong with using your credit cards again after you’ve paid off your debt. But make sure you have the cash available in your savings account or checking account to pay off those purchases. Another tip? If you charge a purchase on your credit card, go online and pay it off as soon as you get home.

"People think they'll use their cards better now that they've paid off their debts. But then they start making just the minimum payments like they did before."

3. Not building an emergency fund

Financial experts recommend that everyone build an emergency fund, a source of cash that you can access to pay for unexpected emergencies without having to rely on credit cards – everything from a blown transmission on your car to a busted furnace in your basement.

It is recommend you have an emergency fund that could cover from six months’ to one year’s worth of daily living expenses.

Liran Amrany, founder and chief executive officer of New York City-based Debitize, a service that helps consumers use credit cards as if they were debit cards, said that building an emergency fund should be easier for people who’ve paid down a significant amount of credit card debt. Unfortunately, he said, that is not the case.

“If they can devote an extra $500 a month to paying off their credit cards, why can’t they do the same with building an emergency fund?” Amrany asked. “They are missing an opportunity.”

And then when these people need thousands of dollars to pay for a new water heater? They turn to their credit cards again because they haven’t built up their savings.

See related: 7 simple ways to creat an emergency savings fund


Tip: Don’t be discouraged if you can’t dedicate a lot of money to an emergency fund each month. Contribute what you can, but be sure to contribute at least something. Even if you can only put aside $100 a month, do it. At the end of a year, you could have $1,200 in an emergency fund. After two years, $2,400, provided you don't have to tap it for an unexpected expense.

4. Vowing to never use credit again

Misusing a credit card leads to plenty of financial pain. Using a credit card properly, though, is a smart financial move.

Too often, consumers who’ve spent a year or more to pay off credit card debt don’t understand this and vow to never use credit cards again.

This is a mistake, Amrany said. Using a credit card to make purchases and then paying the balance off in full and on time each month is one of the best ways to rebuild a weak credit score.

And this is important for consumers who’ve just paid off a large amount of credit card debt. Since having too much card debt can cause a credit score to fall, rebuilding credit should be a priority.

But those consumers who never again use their credit cards miss out on the best way to boost their scores, Amrany said.

“The pendulum swings too far in the other direction for them,” Amrany said. “The fastest way to improve your score is to use your credit card responsibly.”

See related: 6 reasons to stop using cash and start using credit cards


Tip: Amrany recommends that consumers use plastic even if they have the cash to pay for all of their purchases each month. Using a credit card and paying it off on time each month – and in full – will help you boost your credit score – if your positive payment behavior is reported each month to the credit bureaus. If you're not sure your card issuer does so, call customer service and ask.

"The card is like a hammer... You might hit your thumb with a hammer. But if you use it right, it’s a useful tool... If you use [a credit card] properly, you won’t have issues."

5. Closing your credit card accounts

Another big mistake? Too many people immediately close a credit card after they’ve paid it off. True, this will prevent these people from building up credit card debt on those cards. But it also hurts their credit score.

That’s because closing a card will increase your credit utilization – the amount you have borrowed compared to your credit limits – which is the second most important factor in credit scoring calculations after making on-time payments.


Video: What is your credit utilization ratio?

Basically, the more of your available credit you use, the bigger the negative impact on your credit score. If you close a credit card, you are instantly lowering the credit available to you. And if you still have debt on other cards, you are now instantly using up more of your available credit, even if you don’t make any future purchases.

Which card you close can also hurt your credit score. If you close your oldest card, or one of your oldest, you could see your credit score dip.

Why? A longer credit history helps strengthen your credit score. This factor isn’t as important as your credit utilization, but closing a card you’ve been carrying for years could result in at least a slight drop in your credit score.

Frazier recommends that you keep your credit card open, even if you don’t plan on using those cards again.

“The card is a like a hammer,” Frazier said. “You might hit your thumb with a hammer. But if you use it right, it’s a useful tool. It’s the same with your credit cards. If you use them properly, you won’t have issues. Getting rid of a card isn’t the solution to spending problems.”

See related: Don't be hasty in closing unused account with $0 balance


Tip: Closing a credit card can feel like a celebratory moment. But resist the temptation. Remember, just because you keep a card open doesn’t mean you have to use it. Keep that account open, but leave the card behind when you leave your home. That way, you won’t be tempted to use that card.

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Updated: 03-23-2019