Reducing interest rates by the Federal Reserve may not significantly aid you. Instead, consider these six strategic approaches.
In the ever-changing financial landscape, it's essential to stay informed about the latest trends and tips to manage your debt and savings effectively. Here's a roundup of some key points to consider.
Firstly, borrowing on a credit card is one of the most expensive types of debt. An indebted cardholder carrying an average balance of $6,473 would accumulate $9,426 in interest and take more than 18 years to pay off their debt, if they were making only the minimum payment. This underscores the importance of managing credit card debt carefully.
On a brighter note, mortgage rates have reached their lowest level since October 2024, offering a potential refinance opportunity for homeowners. This could mean significant savings for those looking to renegotiate their home loans.
However, it's important to note that rate cuts don't just mean lower borrowing costs. They also mean lower earnings on savings accounts. The top high-yield savings account, currently offering a 4.35 percent Annual Percentage Yield (APY), has seen a decline from its peak of 5.55 percent. Traditional brick-and-mortar banks' average yield on a savings account is 0.52 percent as of Sept. 10, slightly lower than a year ago (0.53 percent).
Inflation in August rose 2.9 percent from a year ago, narrowing the cushion between the rate and the top savings accounts' yields. This highlights the importance of monitoring inflation and adjusting financial strategies accordingly.
In the realm of savings, focusing on day-to-day money management can make a difference in a high-rate era. This includes planning ahead and monitoring accounts regularly. Experts also recommend building an emergency fund with three to six months' worth of expenses. If you're starting from scratch, consider revisiting your budget and trimming your discretionary spending.
When it comes to credit cards, the average credit card Annual Percentage Rate (APR) stands at 20.12 percent as of Sept. 10. Credit card rates tend to move in step with the Fed, but not always by as much. It's crucial to keep track of these rates to make informed decisions about your credit card usage.
In terms of loans, nearly half of applicants (48 percent) were denied at least one loan or financial product between December 2023 and December 2024, with a rejection rate jumping to 64 percent for borrowers with scores below 670. Monitoring credit reports, paying bills on time, utilising no more than 30 percent of available credit, reducing credit card balance, and avoiding opening new accounts can help improve credit score.
Shopping around with at least three lenders is recommended to secure the most competitive deal. The Federal Reserve is expected to cut the federal funds rate by a quarter of a percentage point, bringing it to a new target range of 4 to 4.25 percent. This month's interest rate cut would only bring borrowing costs back to levels last seen in 2022, which were the highest in more than a decade.
Lastly, Fed experts have been fearful that cutting rates could fuel more inflation, which could send Americans even further into debt. This underscores the importance of careful financial planning and management in the current economic climate.
Stay informed, stay vigilant, and remember that every small step towards financial health counts!
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