Alvin's credit card charges him 18% interest on his unpaid balance. His bank is offering him 1% interest on a savings account. The first thing Alvin should do with any extra money he may have is to
A) invest in the stock market.
B) open a savings account at the bank.
C) pre-pay for necessities, like rent and utilities.
D) pay off the credit card balance.

Question

Quizplus · Accepted Answer

The risk-free return generated by paying off the credit card balance is greater than the other options. While the stock market has the potential of earning more than the credit card debt, it is important to adjust the potential earnings for the risk inherent in stock market investing.

Alvin's Credit Card Charges Him 18% Interest on His Unpaid