Last month, the Federal Reserve cut a key interest rate by a larger than expected half percentage point, the first reduction since 2020. This could bode well for consumers struggling with debt they haven’t been able to make a dent in, but how exactly? Katrina Fitten, founder of personal finance coaching firm A New Day For You Financial, says this is the best time to get your money right.
“I say act now because there is a potential that the rates could go right back up, and that means falling even more into debt unnecessarily,” Fitten tells ESSENCE. She says there are some key steps to take during this time in order to capitalize on the lower interest rate.
Refinance.
Fitten says that if you have a mortgage, a car, a student loan, now is the time to look at refinancing those items.
“Contact your lenders to explore any refinancing option to secure a lower interest rate, reduce your monthly payments and overall interest that you’re paying on that loan,” Fitten says.
Clearly her advice is spot on. Refinance activity increased to 46.7% of total applications during the week ending Sept. 6, up from 46.4% the week before, per the Mortgage Bankers Association.
Rebuild your emergency fund.
Nearly 6 in 10 (59 percent) U.S. adults are uncomfortable with their level of emergency savings, according to a June 2024 Bankrate report. Fitten says this is unsurprising since many Americans have struggled to keep up with the steadily rising living costs which are directly connected to the interest rate set by the Federal Reserve. Replenishing your savings can come about a bit easier, according to Fitten.
“Assessing your savings and expenses is optimal now because it’s likely you’ll have more disposable income,” she says. Looking into high yield savings accounts from banks like SoFi, American Express Savings or Barclays is a great way to start making your money work for you.
Balance spending.
“Make sure that you’re having a spending plan or budget because your spending could potentially, as you already know, in our Black and Brown communities, when we get more money, we tend to spend more.”
After the Fed lowered its target rate to between 4.75% and 5% to help ease inflation and right size a flailing job market, Fitten says implementing a spending plan is more important than ever.
“This relief won’t last forever,”Fitten says of the rate cut, and explains that rates could go right back up in the coming months. “I truly believe this is just a drastic move to stabilize us for right now to encourage consumers to go to the grocery store more, purchase personal items, and spend on housing.”
Fitten says she’s encouraging her clients to shift their priorities.
“I’m imploring them to spend money on things that are actually assets,” she says. “It’s important to remember to purchase things that are going to make you money versus things that are disposable–things that will appreciate over time.”
Look into stock market investment.
In 2020 the Fed cut interest rates to near zero in an emergency move to help cradle the economy. When it started to recover, inflation soon surged and the Fed pushed rates in 2022, pushing them to multi-decade highs to combat skyrocketed prices.
As Fitten explains, if a company is perceived as cutting back, stunted or failing in its profitability —either because of its debt expenses or less revenue—the estimated amount of future cash flows will decrease. This will lower the price of the company’s stock value over time.
If there are a number of other companies that have a decline in their stock prices, the key stock markets will experience a decrease in pricing and ultimately make stocks cheaper. Depending on the activity of the stock over time, this could be an incredible win for a stock holder.
“Times like these make it really fortuitous to invest in stocks,” Fitten says.
Stocks on Wall Street hit notable highs on September 19 following the FED rate cut. Market experts explained that the rate cut erased uncertainty about a decision that has loomed over financial markets for months.The S&P 500 and Dow Jones industrial average rose notably in recent weeks. This upswing was led by technology companies, especially those centering on artificial intelligence. Before purchasing though, Fitten advises people to educate themselves about the stock investment process before diving in.
“Oftentimes, we forget about the resources that are out in our communities around financial education,” she says. “Reading articles, watching videos and even going into your local bank to speak with an advisor can be a great first step before moving your money around. This is a time we’ve all been waiting for, whether we realize it or not. Strike while the iron is hot.”