Friday, September 17, 2010

Consumer credit doesn't make much sense

Even though interest on savings in the bank extremely low, I just thought of a good reason for having a savings account. It can be for making purchases under, say $5,000. It's better to save up and buy something like a computer with cash, rather than use a credit card and pay that high interest rate.

If bank savings accounts can prevent people from having to use consumer credit for smaller purchases, that saves one a lot more money than just the measly interest rates they pay.

Consumer credit can be a costly way to go for small purchases, but debit cards, for convenience make sense. Debit cards backed with saving in the bank.

These days, even $1000 can be considered a small purchase compared to, for instance, a mortgage payment.

Getting a loan makes more sense for major purchases such as a house, or a new car (if one insists on driving a car), or in the case of a business, "plant and equipment."

But for small purchases, it seems much better to use savings and avoid credit card interest rates.

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