this Fed can start lower interest rates as once Next month, according to the latest Inflation data.
Fed Chairman: ‘We think the time is near’ Jerome Powell said at a press conference after the last Federal Open Market Committee meeting in July.
for americans struggle In order to keep up with sky-high interest charges, possible A rate cut in September could bring some welcome relief – especially if planned correctly.
Leslie Tayne, an attorney specializing in debt relief at Tayne Law Firm, said: “If you are a consumer, now is the time to ask yourself: ‘What does my spending look like? Where is my money? Grow the most, what are my options? ‘” New York attorney and author of “Life and Debt.”
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Fed officials said they Expected lowering of benchmark interest rate Once in 2024 and four times in 2025.
Some experts say the benchmark federal funds rate could fall below 4% by the end of next year from the current range of 5.25% to 5.50%.
The federal funds rate is the rate at which banks lend money to each other overnight. While that’s not the rate consumers pay, the Fed’s actions still impact the rates they see every day on things like private student loans and credit cards.
Here are five ways to organize your finances for the coming months:
1. Lock in a high-yielding savings rate
Since online savings accounts, money market accounts, and certificate of deposit While everything is poised to fall, experts say now is the time to lock in some of the highest returns in decades.
Currently, interest rates on the best-yielding online savings accounts exceed 5%, well above the rate of inflation.
Although these rates will fall once the central bank lowers its benchmark, the typical saver has approx. $8,000 Earn extra income in a checking or savings account $200 According to a recent Santander survey in June, a year could be saved by moving these funds into a high-yield account with an interest rate of 2.5% or higher. Santander finds that most Americans keep their savings in traditional accounts, while FDIC data shows these accounts are currently Pay 0.45%on average.
“Now is an excellent time to lock in the most competitive CD yields well ahead of target inflation,” said Greg McBride, chief financial analyst at Bankrate.com. “Hold on for better returns later on.” It makes no sense.”
Currently, the highest-yield one-year CD has an interest rate of over 5.3%, which is as good as a high-yield savings account, according to Bankrate.
2. Pay off credit card debt
With interest rate cuts, the prime rate also falls, as do interest rates on variable-rate debt – most notably credit card – A reduction in your monthly payment may follow. But even then, annual interest rates will only fall back to extremely high levels.
For example, according to statistics, the average interest rate on a new credit card today is nearly 25%. LendingTree data. At this rate, if you pay $250 per month on a card with a $5,000 balance, you’ll spend more than $1,500 in interest and take 27 months to pay it off.
If the central bank cuts interest rates by 25 percentage points, you will save $21 and be able to pay off your balance a month faster. “It’s not nothing, but it’s far less than what you would save with a 0% balance transfer credit card,” said Matt Schulz, chief credit analyst at LendingTree.
instead of waiting To accommodate minor adjustments in the coming months, borrowers can now switch to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards personal loanTyne said.
3. Consider the appropriate time to finance large purchases
If you’re planning on making a major purchase, such as a home or car, it may be worth waiting because lower interest rates can lower future financing costs.
“Timing your purchase to coincide with lower interest rates can save you money over the life of your loan,” Tyne said.
Although mortgage rates are fixed and closely related to Treasury yields and economythey have begun to retreat from their recent highs, largely due to the prospect of a Fed-induced economic slowdown. According to statistics, the current average interest rate for a 30-year fixed-rate mortgage is about 6.5% Freddie Mac.
Compared to the recent high of 7.22% in May, today’s lower interest rate on a $350,000 loan would result in savings of $171 per month, or $2,052 per year, for a savings of $61,562 over the life of the loan, according to calculations by senior economist Jacob Channel .
However, McBride said that going forward, lower mortgage rates may also stimulate demand for home purchases and push up home prices. “If lower mortgage rates cause prices to spike, this will offset the affordability advantage for potential buyers.”
what will happen According to Channel, the direction of the housing market is “up in the air” depending on how much mortgage rates fall in the second half of the year and the level of supply.
“It’s almost impossible to time the market,” he said.
4. Consider the appropriate time to refinance
For those struggling with existing debt, there may be more refinancing options available once interest rates drop.
private student loansFor example, there are often variable interest rates that are tied to the prime rate, Treasury bills, or other interest rate indexes, which means that once the Fed starts cutting rates, the interest rates on these private student loans will drop as well.
Eventually, borrowers with variable-rate private student loans may also be able to refinance into cheaper fixed-rate loans, said higher education expert Mark Kantrowitz.
Currently, fixed rates on private refinances range from as low as 5% to as high as 11%, he said.
However, he added that refinancing federal loans into private student loans would give up the safety nets that come with federal loans, “such as deferment, forbearance, income-driven repayment, and loan forgiveness and discharge options.” In addition, extending the term of the loan Meaning you’ll end up paying more interest on your balance.
David Peters, founder of Peters Career Education in Richmond, Virginia, warns to be aware of potential loan term extensions. “Consider maintaining your original payments after refinancing to reduce the principal as much as possible without changing out-of-pocket cash flow,” he says.
Similar considerations apply to home and car loans Refinance Opportunities, in part, depend on your existing rates.
5. Improve your credit score
Those with better credit already qualify for lower interest rates.
when it comes to car loanThere’s no doubt that inflation has hit financing costs and car prices hard, for example. The average interest rate on a five-year new car loan is currently close to 8%, according to Bankrate.
But in this case, “financing is a variable, and frankly, it’s one of the smaller variables,” McBride said. For example, he calculated that a quarter-percent interest rate reduction on a five-year loan of $35,000 would be $4 per month.
Here, and in many other cases, Consumers will benefit more from paying off revolving debt and improving their credit scoresThat could pave the way for better loan terms, McBride said.
