Sending every spare dollar to debt is fragile - one repair with no buffer puts the balance straight back. A starter buffer of a few hundred dollars does most of the protective work, at about $3.85 a week per $1,000 held.
The advice to throw everything at the debt has a catch, and our members have told us about it repeatedly. A household gets disciplined, directs every spare dollar to repayments, and runs its account to near zero each cycle with a kind of grim satisfaction. Then the washing machine dies, or the car needs brakes, or a school term starts, and with no cash between the household and the bill, the cost lands on a credit card or a new buy now pay later plan. The balance that took four months to pay down comes back in an afternoon, sometimes with a limit increase attached, and they blame their discipline when the plan was the problem.
The fix is running debt repayment and a small buffer at the same time: paying the debt down shrinks what you owe, while the buffer stops new costs landing on credit. So here we go through how to run both at once, with honest numbers on what it costs.
About $3.85 a week per $1,000 held, against a credit card at around 20% (illustrative) – and it's worth seeing where that number comes from. Money sitting in a buffer is money not paying down debt, which means the debt charges you interest on it. Hold $1,000 in a savings account while carrying a credit card balance at around 20% and it costs you roughly $200 a year in interest you could have avoided (less whatever small interest the savings earn). Call it ~$3.85 a week per thousand.
What that buys is specific: when the $600 repair arrives, it comes out of the buffer instead of joining the balance. Compare the no-buffer version: that $600 goes onto the 20% credit card, costs roughly $60 in interest if you clear it over a year, risks a late fee in the tight weeks, and, worse, reopens the account you were trying to close for good. Our members told us the reopening was the expensive part, because a limit back in use rarely stops at the repair. Weigh ~$3.85 a week against all of that, and the buffer is cheap for most households carrying credit card or buy now pay later debt.
One exception: if your debts are on fixed repayments you can comfortably meet, with no reusable credit in the picture, the case for holding much cash weakens, and paying the debt down faster makes more sense. The buffer earns its keep where credit is reusable and budgets are tight, which is exactly where our members kept losing ground.
The standard guidance, Moneysmart's included, points at three months of expenses, and for a household mid-debt that number can be so far away it becomes a reason not to start. Our members have told us the first milestone was the hardest, and that progress felt invisible until well into four figures.
So start from the other end. The first $500 does more of the protective work than any amount after it, because it covers the most common shocks: repairs, appliances, medical gaps, school costs. Below are the milestones worth aiming for:
Set it up so it runs without you. Put the buffer in a separate account, ideally at a different bank so it doesn't sit beside your everyday spending, name it for its job, and automate a transfer that leaves on payday, so it's gone before you can spend it. At $20 a week you pass $1,000 within a year. At $50 a fortnight, $1,300. If the automated amount fails twice, lower it rather than abandoning it: a $10 transfer that keeps going is worth more than a $50 one that gets cancelled.
Some of what feels like a shock is actually a bill you knew about. Registration, insurance renewals, school terms, car servicing, Christmas – they all have dates, however they land as surprises because the monthly budget has no line for them. Our members have told us about exactly this: a plan that worked every ordinary week and fell apart whenever an annual cost arrived.
The fix is a sinking fund: list the irregular bills you already know about, divide each by the pay cycles remaining before it lands, and set that amount aside alongside the buffer. Registration of $900 due in nine months is about $46 a fortnight, not a crisis. This does two jobs at once: it protects the buffer for the surprises you didn't see coming, and it removes the most predictable reasons balances come back. A fuller system for irregular costs has its own place, however the one-list version above gets you most of the way.
Minimum repayments on everything first, always, because missed minimums cost fees, interest and credit damage that outweigh anything the buffer saves. The starter buffer contribution second, until the first milestones exist. Sinking funds third. And only then extra repayments on the priority debt, which is where the loan speeds up once the basics are in place. When a shock spends the buffer, the same order applies to rebuilding it: pause extra repayments, refill the buffer, resume. The pause is part of the plan, not a failure.
If your budget has no slack at all – if minimums plus essentials already exceed income – then no ordering of the money fixes that, and the right move is your providers' hardship teams and the National Debt Helpline on 1800 007 007, early. And if the reason no buffer can form is that too many separate repayments are consuming every cycle (credit cards, loans and instalment plans each coming out on different days), then the repayment structure itself may be worth examining, because reorganising several expensive debts is sometimes what creates the room a buffer needs. That assessment has its own place to be worked through properly, and it comes after the foundations in this guide, not instead of them.
The WeMoney app can help you see the moving parts in one place once your accounts are connected: the debts, the scheduled repayments, and the buffer growing beside them. The split itself is still your decision, and by this point you have everything you need to make it.
This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.
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