Getty
The Federal Reserve cut interest rates again.
Here’s what you need to know and what it really means for your money.
Fed Cut
The 0.25% cut, the third one this year, impacts you in several ways. Here’s how to assess the impact of the Fed’s latest rate cut for your financial life:
Savings Accounts
Expect the interest you earn in your savings account to decline. When the Fed cuts interest rates, savers are adversely impacted. Banks and other financial institutions will lower savings rates even further, which means the interest income you earn on your cash will be less.
What To Do: Find alternative uses for your cash. In a low interest rate environment, use your cash to build an emergency fund or pay off credit cards or pay off student loans.
Mortgages
If you are a homeowner and have a mortgage, now is an opportune time to refinance your mortgage. The Fed doesn’t set mortgage rates nor does a rate cut directly impact mortgage rates. Mortgages rates already have been declining, and the average 30-year fixed mortgage is less than 4%.
What To Do: Mortgage rates are relatively low. Refinance your mortgage. If you’re a prospective homeowner, a relatively low mortgage rate is only one consideration to purchase a home. The economy, housing market, job market and your economic situation are some other factors to evaluate before buying a home.
Credit Cards
Americans owe more than $1 trillion of credit card debt. If you have credit card debt, your interest rate is likely variable, which means you can expect some, albeit small, financial relief. However, even with the most recent rate cut, credit card interest rates are often higher than the interest rates of student loans, auto debt and mortgage debt combined.
What To Do: If you have credit card debt, and want to lower your interest rate, consider a personal loan to pay off credit card debt. You can consolidate your credit card debt with a personal loan, which is also known as a credit card consolidation loan. Depending on your credit profile, personal loan rates today start as low as 5.47%. You can use this payoff credit card calculator to calculate how much you can save when you pay off credit card debt with a personal loan.
Student Loans
The latest student loan debt statistics show that 45 million Americans collectively owe $1.6 trillion of student loan debt. When the Fed cuts interest rates, consumers benefit when they refinance student loans. Student loan refinancing just got crazy cheaper, with student loan refinancing rates now as low as 2.01%.
What To Do: Refinance your student loans. This free student loan refinance calculator shows you how much money you can save when you refinance student loans.
For example, let's assume you have $100,000 of student loans at a 7% interest rate and 10-year repayment term. If you refinance student loans with a 3.0% interest rate and 10-year repayment term, you would lower your monthly payment by $195 and save $23,457 in total payments. If you are a doctor, dentist or pharmacist with a large student loan balance, your savings may be even higher.
