5 mistakes you should avoid after paying off credit card debt

You’ve worked hard and spent hundreds of dollars more each month to pay off the credit card debt you ran up. You have now paid it off. It’s time to have a party, right? 5 mistakes you should avoid

Yes. But you should also be careful now.

Once you’ve paid off your credit card debt, it’s important to avoid common mistakes that people often make. It’s way too easy to start using those cards again or to hurt your credit while trying to stay away from them.

If you want to keep those cards at zero every month and keep your credit score healthy, here are five things you should not do. 5 mistakes you should avoid

1. Building up card debt again

Even after paying off debt, too many consumers simply build their credit card debt back up again, said William Frazier, owner of debt counselling service Clean Slate Credit. 5 mistakes you should avoid

While paying off your credit card debt is a positive step, Frazier points out that this work won’t amount to much if you don’t also change your spending habits.

“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. They continue to fall into the same pattern. 5 mistakes you should avoid

2. Ditching the benefits of a cash lifestyle

Many people 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. 5 mistakes you should avoid

Sticking to these promises, though, can prove challenging.

Too many clients never learn how to live that cash-based life, said Xavier Epps, chief executive officer and founder of XNE Financial Advising. 5 mistakes you should avoid

“I’ve worked with clients who were extremely aggressive in paying off their debt, eliminating it in 18 or 24 months,” Epps said. “They paid off tens of thousands of dollars in this time. However, they often overlook the subsequent step: mastering the art of living solely on cash.

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 until they have enough cash to buy it. 5 mistakes you should avoid

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. 5 mistakes you should avoid

Ideally, you’ll end up with an emergency fund that could cover daily living expenses for six months to a year.

Building an emergency fund should be easier for people who’ve paid down a significant amount of credit card debt, according to Liran Amrany, founder and chief executive officer of Debitize, a service that helps consumers use credit cards as if they were debit cards. Unfortunately, he said, that is often 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. 5 mistakes you should avoid

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 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. 5 mistakes you should avoid

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. 5 mistakes you should avoid

“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.”

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. 5 mistakes you should avoid

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

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. If you have debt on other cards, you’re using more of your available credit, even if you don’t buy anything else. 5 mistakes you should avoid

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

Frazier recommends that you keep your credit cards open, even if you don’t plan on using them again. 5 mistakes you should avoid

“The card is 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.”

Bottom line

You’ve paid off credit card debt – congratulations! Don’t undermine your progress by falling back into bad habits or falling out of the credit landscape altogether. If you know you have your spending under control, continue to use your credit card for your everyday expenses and pay it off in full each month. If you don’t trust yourself to keep credit cards in your wallet, avoid cancelling them, as the cancellation will damage your credit score even more. Set your card up to make a small recurring payment each month, like a subscription, and enroll in autopay to pay your credit card bill each month. This way, you can start reaping the benefits of responsible credit card usage without spiralling back into debt. 5 mistakes you should avoid

Dan Rafter has covered personal finance for more than 15 years for publications ranging from The Washington Post and Chicago Tribune to Wise Bread, HSH.com and MoneyRates.com. His work has also appeared online at the Motley Fool, Fox Business, the Huffington Post, the Christian Science Monitor and Time. 5 mistakes you should avoid