Xavier has been working at his first post college job for almost a year when his company gives him a raise, resulting in a paychecks increase of 200, for a total of $400 extra in take home pay every month. He makes a quick list of possible ways to use that money, along with relevant notes for each.



Save for fun summer vacation trip in 8 months

Estimated cost= $1000

Interest rate-- 1% - savings account

3 friends are going -- really want to join



Pay off credit card debt sooner

Balance= $6,500

Interest rate-- 20%

Completely up to date on payments

Typically pay monthly minimum only



Pay down student loan dept

Balance= $34,000

Interest rate-- 4%

Completely up to date on payments



Increase Emergency funds

Balance= $250

Interest rate-- 1% savings account

Realize this should be much higher

Have been lucky so far-- haven't used the account once yet



Participate in company 401(k) plan

Not participating yet

Interest rate-- Variable

Company will match dollar for dollar up to 5% of my salary ($250) a month)



Finance Nicer, more reliable car

Estimated cost- $25,00

Interest rate-- 6%

Currently driving 14-year-old car paid for in cash at a time for purchase

No down payment currently saved



Provide a detailed plan, including actual dollar amounts, for Xavier to wisely use the extra $400 per month from his raise. For each part of the plan, briefly describe why you're making this choice