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The Federal Reserve just gave us a jumbo-sized rate cut, and while it might not sound as exciting as a sale at your favorite store, it's a big deal for your finances. The Fed's decision to lower its benchmark rate by 0.50 percentage points now trickles down to the rest of us, influencing everything from credit card APRs to mortgage rates.
But what does that mean if you're in your 30s? You're probably juggling a career, family, and trying to save for the future while maybe still carrying some debt. Here's how to take advantage of the Fed's latest move.
1. Pay down credit card debt
Credit card interest rates in the U.S. are sitting at a sky-high average of 24.92%, which is the highest since LendingTree began tracking rates in 2019. However, thanks to the Fed's rate cut, issuers like American Express and U.S. Bank have already lowered their APRs by 0.50 percentage points. While this might only save you a couple of dollars a month, every little bit helps when you're carrying a balance.
For example, if you have a $5,000 credit card balance and make $250 monthly payments, a half-point reduction could save you about $1.50 a month in interest. That's not life-changing, but it's definitely better than nothing. If the Fed continues cutting rates into 2025 (as it's suggested it will), the cumulative effect could be more significant, so now is a great time to focus on paying down that debt.
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2. Refinance your mortgage (maybe)
If you're already a homeowner, you're in luck. According to Freddie Mac, the average mortgage rate on a 30-year fixed-rate loan just dropped to 6.08% -- the lowest since February 2023.
That's a small but meaningful decrease of 0.11 percentage points from the previous week. While it might not seem like much, it could save you thousands of dollars in interest over the life of your mortgage.
However, refinancing isn't always the right decision. You'll still have to factor in the closing costs, which can be anywhere from 2%-5% of the loan amount.
If you're planning on staying in your home for several more years, refinancing now could be a good move. But if you're considering selling soon, it may not be worth the hassle. The key is to shop around for the best rate (and closing fees) and calculate whether the long-term savings outweigh the upfront costs.
Experts predict mortgage rates might dip into the mid-5% range by the end of next year, so it could pay off to keep an eye on the market before making a move.
3. Consider buying a home
If you're still renting and have been dreaming of owning a home, now might be a good time to start running the numbers. While mortgage rates are still higher than a few years ago, the recent decline to 6.08% is encouraging. And with the Fed likely cutting rates further in 2024 and 2025, borrowing could get even cheaper.
However, don't get too excited just yet. Owning a home comes with extra costs like property taxes, maintenance, and insurance, so it's important to ensure you're financially ready. Plus, while you may be able to afford more house for the same monthly payment thanks to lower rates, it's wise to avoid maxing out your budget. No one wants to be house-rich and cash-poor.
If you're not quite ready to buy, waiting and saving is OK. Real estate agents aren't going anywhere, and neither are homes for sale.
The Fed's rate cut isn't a ticket to start throwing money around, but it presents opportunities -- whether refinancing a mortgage or paying down debt. Remember your financial goals, crunch the numbers, and take advantage of the Fed's moves while staying smart about your spending and saving strategies.
You're in your 30s -- this is the time to make smart decisions that set you up for success down the road.
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