Question

Alice wants to use the stack method to pay down her debts listed in the table below. If she applies an extra $150 a month to her debts, what will be the first debt she targets to pay off and what will be the monthly amount she applies to it?

Debts Interest Rate Minimum Monthly Payment
Debt 1 5.5% $75
Debt 2 2.75% $ 250
Debt 3 13.25% $ 150

Answers below:
Debt 2, $400

Debt 2, $150

Debt 3, $300

Debt 3, $400

Answer 1

To determine which debt Alice should target first using the stack method (also known as the debt avalanche method), she should focus on the debt with the highest interest rate because it will save her the most money in interest over time.

Looking at the listed debts:

- **Debt 1**: 5.5% interest rate, $75 minimum payment
- **Debt 2**: 2.75% interest rate, $250 minimum payment
- **Debt 3**: 13.25% interest rate, $150 minimum payment

The debt with the highest interest rate is **Debt 3** at 13.25%.

Now, with the stack method, Alice will make the minimum payments on all debts and apply any extra money to the debt with the highest interest rate.

The minimum payment for Debt 3 is $150. With the extra $150 she plans to apply, her total monthly payment towards Debt 3 would be:

**Minimum Payment + Extra Payment = $150 + $150 = $300**

Therefore, the first debt she targets is **Debt 3**, and she will apply a total monthly amount of **$300** to it.

Among the given options, the correct one is:

**Debt 3, $300**.