BATON ROUGE — With credit card interest rates set to drop, what does that mean for your wallet? Should you adjust your financial habits, rethink your savings strategy, or prioritize paying off certain debts?
Interest rates don’t just affect what you buy – they shape how you save!
Understanding the impacts of interest rates
The Federal Reserve is about to start cutting interest rates for the first time since 2020. Fed Chairman Jerome Powell hinted nearly a month ago that rates would be reduced, though the size of the cut remains uncertain. For those with credit card debt, a lower rate means borrowing will become a bit cheaper.
“As rates fall, more of your payment will go toward reducing your principal balance,” Neighbors Federal Credit Union’s Financial Wellness Director Kim Chapman said. “As you pay down debt, more of your money will go toward the principal balance – what you actually borrowed – rather than interest. This is welcome news for anyone trying to eliminate debt.”
Interest rates for credit cards and car loans should drop a bit. That’s a relief to buyers who have been putting off big purchases.
“I thank God every day I don’t need a new car because I wouldn’t be able to sleep at night with 7% or 8% interest rates, knowing not long ago they were 2% or 3%.”
So, how much will rates drop? The cut is likely to be a quarter or half percentage point. However, Fed Chairman Powell has signaled that this will not be the last reduction.
“If you can wait for rates to drop and need to make a major purchase, hold off a little longer,” Chapman advised. “It will affect how much your payments are and how much total interest you’ll pay.”
Rates are expected to decrease slowly, so patience is key. Chapman says to consider whether a purchase is truly a need or a want.
“If it’s something you can put off for six months or a year, wait. But if you need to act now, make your move when the first rate drop happens.”
Smart Money Tip: Pay off your debt quickly
As rates fall, more of your payment will go toward reducing your principal balance. This is welcome news for anyone trying to eliminate debt.
“Before, if $10 of your payment went toward interest, maybe now it’s only $8 or $7. You can capitalize on that, as more of your money will eat away at the balance.”
The quicker you pay off your debt and take advantage of rate cuts, the more you’ll reduce your principal and pay off your debt faster. Chapman says this applies to all types of debt, from loans to credit cards.
Smart Money Tip: It’s not a budget, it’s a spending plan!
The ‘B’ word can be scary. No one likes to think about a budget because it can be intimidating. But it’s crucial. Chapman encourages a shift in mindset to make saving feel less tedious.
“I like to call it a spending plan. We make plans all the time – every day. So, be intentional about planning for your money.”
Chapman likens it to learning how to ride a bike.
“When you’re learning to ride, you’ll fall, scrape your knee, and feel some pain. But you keep going, and eventually, you master it – ‘look, no hands!’ It’s the same with taking control of your finances. There might be a few bruises along the way, but once you get the hang of it, the sky’s the limit for reaching your financial goals.”
Blueprint for Financial Success
Whether you want to optimize your budget, enhance your credit score, or plan for a significant purchase such as a home or vehicle, Neighbors Federal Credit Union’s free Blueprint for Financial Success program is here to help!
Not sure what you need financially? Neighbors Federal Credit Union can help! Their Certified Financial Counselors will work with you to identify your goals and create a personalized plan.
Click here to start your Blueprint for Financial Success.
Editor’s Note: This article is part of a sponsored segment paid for by Neighbors Federal Credit Union.
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