Georgia Assessments for the Certification of Educators GACE Practice Test

Frank has a Christmas bonus of $10,000 and wants to retire comfortably. Which is the best way for him to spend this bonus?

1. Put it in his retirement account

2. Put it in his savings account

3. Use half to pay down his mortgage and save the other half

4. Use all of it to pay down his credit card debt

The correct answer is: Use all of it to pay down his credit card debt

Using the entire bonus to pay down credit card debt can be an effective strategy for numerous reasons. Credit cards often carry high interest rates, which means that any debt left unpaid can accumulate significant interest over time. By eliminating or greatly reducing this debt, Frank would not only decrease his monthly financial obligations but also enhance his overall financial health. In contrast, while putting money into a retirement account or savings could be beneficial in terms of long-term growth or emergency funds, they may not provide the immediate relief from high-interest debt that could be financially crippling. Paying down a mortgage could also be a responsible choice, but it may not have the same immediate positive effect on cash flow that tackling credit card debt would. Therefore, focusing on wiping out high-interest credit card debt can free up resources for other financial goals in the long run.