Question

You have some cash. You can either invest in a short-term bond that pays 4% or payoff some credit card debt at 9%. Which should you do?

Answer 1

I would invest in a short-term bond that pays 4% because you are gaining money and it seems like it would be the best choice out of the two.

Answer 2

The credit card should be paid off first.

Explanation:

Given criteria is :

You have some cash. You can either invest in a short-term bond that pays 4% or payoff some credit card debt at 9%.

First and foremost, a person should pay his debts first and then save. This is because debts accumulate with time (if not paid) and become many times the original amount due to high interest rates.

So, if you have some cash, you should pay debt first as it is charged at 9%. If you fail to pay this, your credit card rating will fall down and further problems will arise. Long time accumulation of debts ultimately result in bankruptcy filing.

Therefore, credit card should be paid off first.