Within the Melt Debt snowball demonstration engine, there is an option to allocate a percentage of your rollover/snowball funds (the extra money that is freed up when you pay off a debt) to your Cash Reserve (or “rainy-day”) account.
Having a cash cushion makes it much easier to avoid having to charge it when an emergency comes up. However – to be consistent with all of our other teachings and advice – do not let the lack of a rainy-day account stop you from moving forward and paying down your debt. This is just an option.
Diverting a small portion of the rollover rather than applying every last penny to the next debt in line to be paid off does not delay your final debt-free date nearly as much as most people think.
Experiment with different amounts to see what kind of impact it has on your specific plan, and implement whatever fits in with your goals.
P.S. See the related topics of Rollover allocation to Charitable Causes and Investment/Retirement accounts.
