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 (1 point) Responses Debt 2, $400 Debt 2, $400 Debt 2, $150 Debt 2, $150 Debt 3, $300 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.

Looking at the debts in the table:

• Debt 1: 5.5% interest, $75 minimum monthly payment
• Debt 2: 2.75% interest, $250 minimum monthly payment
• Debt 3: 13.25% interest, $150 minimum monthly payment

The highest interest rate is for Debt 3 (13.25%).

Now, if Alice is applying an extra $150 on top of the minimum payment, her total monthly payment for Debt 3 would be:

Minimum monthly payment for Debt 3: $150
Extra payment: $150
Total payment for Debt 3 = $150 + $150 = $300

Thus, the first debt Alice targets to pay off is Debt 3, and the monthly amount she applies to it will be $300.

So the correct answer is: Debt 3, $300.