To determine the second debt Alice will target with the stack method, we first need to understand which debt she will focus on first and how much extra she is applying to her debts.
Using the stack (avalanche) method, Alice will prioritize paying off her debt with the highest interest rate first. Here are the debts sorted by interest rate:
- Debt 3: 13.25% ($150 minimum payment)
- Debt 1: 5.5% ($75 minimum payment)
- Debt 2: 2.75% ($250 minimum payment)
Step 1: Target the highest interest rate debt first (Debt 3).
Alice has an extra $150 to apply to her debts. Her minimum payment on Debt 3 is $150, so she pays a total of:
- Total Payment on Debt 3: $150 (min payment) + $150 (extra) = $300
Step 2: Once Debt 3 is paid off, Alice will focus on the next highest interest rate debt (Debt 1).
After Debt 3 is paid off, she will then target Debt 1 (the next highest interest rate).
Step 3: Calculate the total amount allocated to Debt 1.
Once Debt 3 is resolved, she will apply the total payment she was making on Debt 3 to Debt 1:
- Total Monthly Payment on Debt 1: $75 (min payment for Debt 1) + $300 (previously paid towards Debt 3) = $375
Thus, once she has paid off Debt 3, the second debt she will target is:
Debt 1 and the amount she applies will be: $375.
So, the answer is: Debt 1, $375.
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