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A Fed rate cut is finally coming. 4 things you should be doing right now

Monicel
A Fed rate cut is finally coming. 4 things you should be doing right now

There was a collective sigh of relief when, on September 18, the Federal Reserve cut the federal funds rate by half a percentage point. After more than a year of higher interest rates, knowing that lower rates are on the way is good news. But what will these lower rates do for you? How can you benefit?

If you’re wondering about your next steps, these four suggestions can help you position yourself for when rates drop even further and leave more money in your checking account at the end of each month.

1. Pay off the debt

We’re no Nostradamus, but the Federal Reserve has indicated it expects two more rate cuts this year: one in November and one in December. And, according to Fitch Ratings, analysts expect four more cuts over the course of 2025. While we can’t say for sure how low consumer interest rates would be, we can tell you that preparing now puts you in a better position to take advantage of it. these rates when they arrive.

If you have high interest debt, now is the time to pay it off. We’re not suggesting you trade old debt for new. In fact, once you pay off the old debt, the ideal situation would allow you to remain debt free. However, if this is not a reality, here are two ways paying off current debt can help.

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APY

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Annual percentage yield of 4.10% to October 11, 2024

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APY

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Fee information

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Check the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates are subject to change at any time before or after account opening.

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  1. Paying off debt lowers your credit utilization ratio, and lowering that ratio helps raise your credit score.
  2. Getting rid of old debt makes it easier to borrow money when you really need it. Imagine your sump pump backing up again and your basement flooding. However, your standard HO-3 policy excludes sump and sump pump backups, and you’re looking at a $5,000 bill to clean and repair. Let’s say you take out a personal loan or put the repairs on a credit card. With the old debt gone, it should be easier for you to make payments. Equally important, you should dial in a lower interest rate.

The less debt you have, the easier it will be to borrow money when you need it. If you need help getting started, a debt settlement app can lead the way.

2. Generate savings

If the analysts are right, we will have experienced seven rate cuts by the end of next year. While we can’t say exactly what the average mortgage rate will be or how much you’ll pay to finance a car, it’s safe to assume that credit will be much less expensive than it is now.

If you’ve been putting off a major purchase, such as a vehicle, land, RV, boat or new home, now is the perfect time to start your savings account. Not only is it essential to have enough cash stashed away to cover emergencies, but also to have enough to make a healthy down payment on your next big purchase.

Having a large down payment available helps in two ways:

  1. It improves your odds of loan approval because lenders like it when borrowers have “skin in the game.”
  2. It lowers your monthly loan payments, freeing up money to do other things, like investing for retirement.

Looking for the perfect account to house your down payment or other savings? Click here for our curated list of the best high-yield savings accounts and today he opens one.

3. Make sure your credit report is in good standing

Imagine you have an emergency that leads you to apply for a personal loan. Errors on your credit report could affect your credit score and ultimately your ability to get a loan.

When Consumer Reports and WorkMoney had 4,300 people review their credit reports, 44 percent found errors. Because your overall credit score is based on the information found in your credit reports from the three major reporting agencies: Equifax, TransUnion, and Experian, any small mistake can make a difference.

You can order a free copy of each of your reports at AnnualCreditReport.com. If you find any error, no matter how small, please discuss it with the reporting agency. You have 30 days to prove your information is correct or remove it from your report.

If there’s any chance you’ll want or need access to credit for a year or two, now is a good time to make sure everything is in order with your credit reports.

4. Lock a CD speed

One of the downsides to a feed rate cut is the lower rates on deposit accounts, such as certificates of deposit (CDs). That said, it is still possible to find a CD rate above 4%. It may not be as high as it used to be, but it’s still a lot higher than what we usually see.

Ready to earn a solid return on an FDIC-insured CD? Click here for The Ascent’s roundup of the best CD rates to choose one.

Whenever the Fed lowers the federal funds rate, financial institutions tend to lower the APY on CDs and other deposit accounts, such as high-yield savings accounts and money market accounts (MMAs). In fact, banks and other financial institutions don’t always expect the Fed to make an actual cut. Sometimes just the rumor of an upcoming rate cut is enough to spur them to reset their rates.

If you’re looking for a safe place to put money you don’t need immediately, now is the time to take advantage of rates that remain historically high.

No one can see the future, but we can predict patterns based on generations of US financial maneuvering. The significant advantage of looking back at history is the ability to make the kind of moves that benefit us most.

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