How To Start Saving Once You're Out Of Debt.


How to start saving once you're out of debt.

Once you pay down your debt be sure to build up (or start) an emergency savings fund

Dear Kim,

I recently made my final  payment on the debt management plan! My payment was $400 per month, which I will now be able to save. I currently have no savings and I am not sure what the best vehicle for my savings would be. I am thinking I should put the money in a CD or even an IRA. I currently have a bank account with about $100 in it.  What are your thoughts?


saving after debt


Dear Jeremy,

Congratulations on paying off your debt! I know it can be a long road, so celebration is definitely in order. I am very excited to hear that you are planning to save the money you were using to pay your debt management plan. I do have a concern, however, which is that you only have $100 in your bank account.

I believe it is in your best interest to have at least 3-6 months' worth of  expenses saved in your bank account for emergencies. If you do not currently have a spending plan, I suggest that you track your expenses for 30 days to determine what you are spending on a monthly basis. Multiply that number by 3 and that is the minimum you should have in a bank account.

A Certificate of Deposit and an IRA are both wonderful savings vehicles, but they do not allow for quick access to your funds in case of an emergency. There is often a penalty involved if you withdraw the money from these accounts too soon. My suggestion would be to investigate opening an IRA or putting money into a certificate of deposit (CD) once you have saved the 3-6 months' worth of expenses in a savings account. An additional perk to having this level of liquid savings is that if an emergency does arise, you will not need to use credit cards.

Thank you!

Kim headshot 3

Kim Cole is the Education Outreach Coordinator for Navicore Solutions. Kim provides financial education workshops and seminars to communities. Readers can submit general questions relating to personal finance, credit scoring, debt management, student loans, home finance or bankruptcy which may be highlighted in the next month's edition. All identifying information will be kept anonymous.

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