Savings instead of paying off your credit card debt

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Reference no: EM132062880

Suppose you just won $2500 in the lottery. You also have the following financial situation to begin with:

1. A credit card with $1500 balance that charges 15% interest

2. A savings account with $300 balance that earns 2% interest

Using the concept of fungibility, explain why you might be tempted to deposit your winnings into savings instead of paying off your credit card debt. If you deposit all the money into your savings account and do not immediately pay off your credit card debt, what is the additional cost? (assume that interest is charged/paid on both accounts)

Reference no: EM132062880

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