See Jane get a raise!
Jane’s raise nets her an additional $1,000 per month. Go, Jane, go!
Jane is smart! She wants to use her raise to: 1) pay down credit card debt; 2) start emergency savings.
Now, Jane needs help. What is the best way to split that $1,000 per month between paying down credit card debt and building up her emergency fund? We can help Jane! See us do the math!
First, Jane carries a $10,000 debt balance on her card at 20% APR.
If she pays the minimum monthly payment of $200 per month toward her debt, she can put $800 per month into her emergency savings. Her $10,000 credit card debt will then take nine years to pay off, and she’ll also pay $11,680 in interest charges.
If Jane doubles her credit card payment to $400 per month, she can put $600 per month into her emergency savings. Now, it will take Jane two years and seven months to pay off the $10,000, and she’ll pay $3,044 in interest charges.
See Jane’s two payoff options in this nifty chart!
If you were Jane, based on what’s above, how would you split your extra $1,000 across your credit card debt and emergency fund?