Set a starter buffer amount and explain why it comes before extra debt repayment.
A common way for a debt repayment plan to go wrong has little to do with effort. People put every spare dollar toward what they owe, which leaves their account close to empty for most of each month. When an unexpected bill arrives, there is no cash to pay it, so it goes on the very credit card they are working to pay off.
Two things are hurt when that happens. One is money: the card balance goes up, and the bank charges interest on the added amount. The other is motivation. Seeing the balance rise again after months of steady progress is the moment many people give up and conclude that repaying debt in a planned way is not for them.
Consider a person three months into a debt plan. By cutting back and directing all spare cash to their credit card, they brought the balance down from S$3,000 to S$2,200. Then the screen on their phone cracked. With S$40 in their account, they charged the S$380 repair to the card, and the balance went back up to S$2,580 (S$2,200 + S$380), which made three months of work feel wasted. The plan they were following was sound. It was only missing a small cushion of cash.
If you hold back a modest sum before sending everything to debt, the next surprise can be paid from that cash. The card stays untouched and its balance keeps going down.
A starter buffer is a small amount of cash, held apart from the money you spend day to day, that pays for the ordinary surprises that turn up while you are repaying debt. Examples include a trip to the GP plus medicine, a dental problem, getting a phone fixed, replacing an appliance that has broken and can't wait, or a flight home at short notice for a family matter. Each of these tends to run to a few hundred dollars, sometimes a bit more, and a typical person meets a few in a year.
It is much smaller than a full emergency fund, which is sized to carry you through months of expenses if you lose your job. You'll build that later, in lesson 6.2. It is also separate from sinking funds, covered in module 3. A sinking fund saves up for a cost you can see coming, while the starter buffer is for costs you had no way of predicting.
Keep the amount deliberately small. Every month spent building cash before you start on the debt is a month in which the debt keeps charging interest. The buffer only needs to be large enough that you stop reaching for the card when something goes wrong.
Base the figure on your own last year rather than a round number from a website. Pull up your statements for the past twelve months. Write down each cost that was unplanned and had to be paid straight away. Pick out the biggest and round it up a little. The result is your starter buffer.
You may need to adjust that figure in one of two ways. If your biggest surprise was very small, you might still set a floor high enough to pay a typical dental or medical bill. If it was very large, a hospital stay for example, find out how much your insurance really pays before you build the buffer around it, and think about whether a bill of that size should sit in the starter buffer or in the full emergency fund.
Wei Ling (an invented example) looked over her last year and counted three surprises. A GP visit with medicine came to S$90. A cracked phone screen came to S$380. A cracked tooth cost her S$720 once her company's medical benefits had paid. She took the largest, S$720, and rounded it up to S$1,000 as her starter buffer.
Your extra money goes to the buffer first. When the buffer reaches its target, every extra dollar goes to expensive debt, which means high-interest borrowing such as credit card balances and credit lines. Those payments sit on top of your minimum payments and carry on until the debt is gone.
Wei Ling had S$200 saved when she began, and the plan she built in lesson 5.4 frees up S$480 each month. In month 1, the whole S$480 went into the buffer, taking it to S$680 (S$200 + S$480). In month 2, S$320 was enough to reach S$1,000 (S$680 + S$320), and the S$160 left over (S$480 - S$320) went to her card. From month 3 on, she pays the full S$480 onto the card in addition to its minimum payment.
While you are repaying, the buffer stays at its target size and only needs topping up. If you dip into it for a surprise, stop the extra debt payment, put the money back into the buffer, and only then return to the debt. For Wei Ling, spending part of her S$1,000 means her extra money refills the buffer before anything beyond the minimum goes to the card. Once the buffer is back to S$1,000, she starts sending the extra to the card again.
Follow this order every time: the starter buffer, then expensive debt, then a bigger buffer. After the expensive debt is cleared, your next goal is the full emergency fund in lesson 6.2.
To begin, go back through your last twelve months and find the surprise bills. List each cost that was unplanned and could not wait, note the largest, and round it up a little to get your starter buffer amount.
List the surprise costs you had in the past year and set your starter buffer from the largest one.
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