How much to keep in checking while getting out of debt?

[Inigo_Montoya]

How much should we keep in checking while we pay off debt? We have $750 in savings. Our bills are $1,800 a month and our net is $6,000. We've been paying off about $4,000 a month, with $21,400 left - so only about 5 1/2 months until we're debt free outside of the mortgage.

I feel like if something comes up we can just slow down on the debt payment to take care of the bill, and the $750 is enough to get us through 2 weeks if something comes up right after pay day.

[bjl584]

Figure out your monthly expenses and multiply by 3. That's a good start as to how much money you should have at any given time.

With a net income of 6K with only $750 in cash, you definitely need to increase your savings.

[Inigo_Montoya]

I understand increasing savings. We're going to bump savings up this summer after we pay off debt. With our bills only being $1,800 a month, I'm not concerned about building savings when we have $21K in debt. That's like worrying about installing a fire sprinkler when the house is already on fire.

My question is, what do you keep as a minimum balance in checking while you're paying off debt aggressively? We're keeping $30-$50 in checking right now, and then withdraw $250 cash every two weeks to cover gas and groceries for the pay period. The $30-$50 is what my fiance uses to buy her gum and coffee while she works the night shift. No, she can't take a coffee pot to work - the nature of her job makes that not possible.

[kork13]

Because your income is relatively high & expenses are low, I would tend to agree with you.

If it were me, I would bump up the money in savings to be at least $1000 (about half of your monthly expenses) or perhaps $2000 (a full month's expenses)... That would give you some assured safety if something crazy happened. However, it might be unnecessary, given that your expenses are just 25% of your income.

As for the amount kept specifically in checking, I normally hold a $1000 buffer. However, if you know that your expenses are predictable, you could probably get by with less that $100-$200 as a buffer.

Once you get your debts paid off, you should also raise your savings to cover at least 3-6 months of your expenses, which would protect you from needing to go into debt again in the future.

[MonkeyMama]

Does it matter?

I am the type to keep -0- in my checking account. Everything is in there to pay due bills, and everything else is invested and working for me. Being in debt is the same difference. (You want that money working for you - paying off that debt).

If "keeping $50 in the checkbook" is working for you, then I'd just stick with that. If you are bouncing checks or having problems, then keep an appropriate buffer in there.

[bjl584]

I understand increasing savings. We're going to bump savings up this summer after we pay off debt. With our bills only being $1,800 a month, I'm not concerned about building savings when we have $21K in debt. That's like worrying about installing a fire sprinkler when the house is already on fire.

Do you have any savings at all outside of the checking account? If not, then you do need to increase them now, at least more than the $750 that you stated that you had. You have enough income to dig yourself out of most situations, but something catastrophic like a job loss or medical issue could really set you back if you don't have any money to fall back on. But, to answer your question on the checking account, I personally keep a few extra hundred in mine just as a sort of cushion in case something unexpected comes up. If I need more money than that I can draw it from my savings account.

[disneysteve]

Dave Ramsey preaches a $1,000 starter emergency fund while getting out of debt. I prefer at least one month worth of expenses so in your case, I'd say $1,800. In either case, $750 isn't enough in my opinion.

[snafu]

Inigo, good on you for staying focussed and paying down debt @ $ 4K each month. What does your bank charge you for the services you use? Our bank waives fees and offers some premium services we use as long as we keep a minimum balance of $ 1,000. I figure I avoid about $ 50. in monthly service charges and also see the sum as an emergency fund should I make a mistake. We do zero based budgeting; each pay any money left over is swept to a linked saving account used to fund special purchases. It's a huge motivation to continue to seek ways to cut expenses and not fritter money for silly spends.