skip to main content

See the results of our 2022 Personal Finance Study!

Life After Student Loans: What Should You Do With Your Money?

Samantha Rose
Samantha Rose is a personal finance writer covering financial literacy for OppU. Her work focuses on providing hands-on resources for high school and college-age students in addition to their parents and educators.
Read time: 6 min
Updated on February 14, 2022
OppU banner logo
You never thought this day would come. So now what?

Imagine being one payment away from student loan freedom. Submit a payment. Watch the debt meter drop to $0.

Congrats -- you’re now student loan free!

This is a huge win considering $35,620 was the average student loan balance in 2019. But what should you do now? Treat yourself? Buy a house? Retire early?

Here are six ideas for how to put all that extra income to good use.

No. 1: Pay down other high-interest debt

If student loans were your only source of debt, congratulations on being debt-free!

For most people, debt doesn’t end at student loans. So don’t let your momentum stop either.

If you have other debt from credit cards or personal loans, tackle it in the same way as student loan debt. The debt avalanche or debt snowball repayment methods are a smart option.

The debt avalanche method prioritizes toxic high-interest debt first, helping you save money on interest. The debt snowball method increases motivation by paying off the loan with the smallest balance first.

Whichever method you choose, keep up the momentum. Progress, no matter how slow and steady, is the key to success. Need an extra motivator? Picture achieving financial freedom -- however that looks for you.

No. 2: Boost an emergency fund

It’s a huge accomplishment to reach financial freedom. Don’t diminish that win by falling into a vicious cycle of debt.

Ideally, you already have an emergency fund. If not, don’t stress. Now is the time to start an emergency fund or increase monthly contributions.

An emergency fund provides risk protection from an unforeseeable expense. It prevents relying on credit, loans, or other debt-creating options.

Your goal should be to save three to six months of emergency funds. This is an ideal amount to sustain your current expenses. You will have funds to cover a medical bill, a home repair, a period of unemployment, or other unexpected cost.

A smart approach to building an emergency fund is by automating savings. Allocate a specific dollar amount from each paycheck. This amount will automatically transfer to a savings account. Automation takes out human choice to spend money elsewhere. You won’t miss money that never touches your checking account.

No. 3: Ramp up retirement savings

The present often takes precedence over the future. For instance, it’s difficult to focus on saving when you’re in debt. That’s not great news for the state of your retirement account.

Once you pay off student loans, it’s time to ramp up retirement savings.

Put extra money toward your retirement account, such as a 401(k). Take advantage of an employer-matched retirement account -- it basically provides free money when your employer matches the amount of money you deposit up to a certain percentage of your salary.

If possible, max out your yearly contribution to save for lost time. For 2020, the contribution limit increased to $19,500 for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan.

If you are at least 50 years old, take advantage of catch-up contributions. A government-mandated catch-up policy increases one’s annual contribution limit. For 2020, employees who participate in these plans have a $6,500 limit.

If you don’t have an employer-sponsored retirement account, open an IRA or Roth IRA account. An IRA account may offer greater benefits, such as tax-free growth and flexibility, than a 401(k).

No. 4: Prioritize financial goals

Far too many people aren’t intentional with spending and saving. That means we overspend while forgoing saving for our goals. This is a guaranteed route to financial unhappiness.

To combat unhappiness, create financial goals and prioritize them with money. Once you pay off student loans, use the extra money to fund a financial goal.

Create a road map for accomplishing short- and long-term financial goals by using a financial goals worksheet. Be intentional with your savings. We have to make choices with our cash flow -- spending, saving, or investing.

Goal setting worksheet

No. 5: Stop creating debt

You paid off one debt; don’t replace it with another.

Continue managing your money to avoid taking on avoidable, high-interest, high-risk debt. Credit card debt or a high-cost loan tend to be the most high-risk.

What is your reason for progressing toward financial freedom? Do you want financial flexibility to retire early? Or funding to pursue entrepreneurial passions?

No matter your goal, debt will stand in the way. When you accumulate debt without paying it off, financial freedom becomes more difficult to grasp.

Reduce your temptation to create debt by living within your means. Stop overspending. Stop relying on credit cards. Start envisioning financial freedom.

No. 6: Treat yo’ self

On that note: Don’t forget to celebrate this enormous win. Paying off student loans often requires years of strict budgeting and financial commitment.

You’ve worked hard, so give yourself a budget break to treat yourself to a want.

Wondering what you should do to treat yourself? Clothes, massages, brunch, or electronics -- the sky's the limit. But remember: everything in moderation.

There’s a reason why treating yourself should be confined to a single day. Don’t break your budget with too many expensive splurges. Be responsible with your money the other 364 days.

More ideas for life after student loans

We spoke to Krista Goodrich, author of “The Boss Lady Investor,” about her suggestions for how to regroup after paying off student loans. Goodrich’s book draws from her experience graduating college with $54,000 of student loan debt and figuring out how to pay it off 13 years earlier than scheduled.

After paying off student loans, it can be extremely tempting to start spending your now excess cash. I mean, you spent years dreading the bill but diligently paying it, and now it's time for fun, right? Well, maybe.

Depending on where you are and where you want to go in life, that payment -- that you have found a way to make over all of these years -- may be just what you need to jump-start your savings and investment life.

Get rid of your other debts.

Now that you have gotten rid of your student loans, let's slash those other debts too. Take your student loan monthly payment amount and pay that towards another debt. You will be amazed at how quickly you can eliminate all of your debts if you use this method going forward.

You want some type of reward for all of your hard work paying off your loans, right? I get it and you should be rewarded. So split the difference.

If your monthly payment was $300 per month, why not take $150 a month for yourself and put the other $150 a month into increased contributions in your 401k, or open an IRA and contribute there? If you want to be wealthier, faster, then supercharge this strategy by putting the entire amount towards retirement.

No major debts? Great for you! Now let's take those student loan payments and use them to build wealth.

If you don't own a home yet, open a savings account and start banking those payments so you can have a down payment for a home. Or if you are already a homeowner, consider saving the funds to eventually buy an investment property. Rich people own real estate -- period. So if you want to be rich, start [by] early investing in real estate and build a portfolio of wealth.

Bottom Line

No matter what you decide to do next, life after paying off student loans should be celebrated. Improve your financial health -- but treat yourself, too.

What are your plans after paying off student loans? Tell us @OppUniversity.

Article contributors
Krista Goodrich

Krista Goodrich is a serial entrepreneur, investor, author, and motivational speaker. She  is known as The OG Boss Lady Investor™. Goodrich also offers online finance courses and wrote the book, "The Boss Lady Investor™: You Don’t Need a D!*k to Understand Money." She lives in Daytona Beach, Florida, and is an advocate for growing financial literacy in women and helping others learn about personal finance and creating wealth.

California Residents, view the California Disclosures and Privacy Policy for info on what we collect about you.