Rosalind Evans
Prepare for Lower Rates with Smart Financial Decisions
Last week, Federal Reserve Chair Jerome Powell hinted at an upcoming interest rate cut, marking a significant shift in economic policy. “The time has come for policy to adjust,” Powell stated during the Jackson Hole, Wyoming annual retreat. A rate cut would be the first since 2020 and could relieve many Americans. As Ted Rossman from Bankrate.com highlighted, “From a consumer perspective, it’s important to note that lower interest rates will be a gradual process.” Here are five strategic money moves to consider to make the most of this opportunity.
1. Pay Down Credit Card Debt Efficiently
With interest rates potentially dropping, credit card rates could follow suit, reducing monthly payments on variable-rate debt. The average credit card interest rate currently sits at nearly 25%, which makes debt expensive. Matt Schulz from LendingTree pointed out that a small rate cut might save you a bit, but switching to a 0% balance transfer card or a lower-rate personal loan could be more beneficial. Leslie Tayne, a debt relief attorney, advises, “Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card.”
2. Lock in High-Yield Savings Rates
Interest rates on savings accounts and certificates of deposit are poised to decrease after the rate cut. Now is the time to lock in high returns. Greg McBride, Bankrate’s chief financial analyst, suggests, “Now is a great time to lock in the most competitive CD yields at a level well ahead of targeted inflation.” Moving funds to a high-yield account earning 2.5% or more can significantly boost your earnings compared to traditional accounts.
3. Plan Big Purchases Wisely
If you’re considering a significant purchase, like a car or a house, waiting for lower rates could save you money in the long run. “Timing your purchase to coincide with lower rates can save money over the life of the loan,” says Leslie Tayne. Current mortgage rates have already begun to decline due to economic factors. Although there’s potential for lower rates to spur demand and increase prices, timing remains critical. Jacob Channel from LendingTree notes that predicting the exact market response can be challenging, saying, “Timing the market is virtually impossible.”
4. Evaluate Refinancing Options
Lower rates open doors for refinancing. Private student loans, for example, often have variable rates tied to economic indicators. Mark Kantrowitz, an expert in higher education financing, explains that private student loans can also be refinanced to a lower fixed rate once rates fall. However, caution is necessary when refinancing federal loans into private ones due to the loss of benefits like loan forgiveness. David Peters, founder of Peters Professional Education, advises keeping monthly payments the same after refinancing to pay the principal faster.
5. Improve Your Credit Score
A better credit score means lower interest rates, regardless of broader economic trends. Current auto loan rates, for instance, hover around 8%, making car financing costly. However, Ted Rossman emphasizes that paying down debt and boosting your credit score can lead to more favorable loan terms. Greg McBride echoes this sentiment, suggesting that improving your credit score offers long-term benefits, saying, “Consumers would benefit more from paying down revolving debt and improving their credit scores.”
Take Charge of Your Financial Future
Anticipating the Federal Reserve’s first rate cut since 2020 presents an opportunity to realign financial strategies. By paying down debt, securing high-yield savings rates, carefully timing major purchases, exploring refinancing options, and improving credit scores, consumers can position themselves for financial success. As interest rates shift, proactive planning will ensure you make the most of your money.
