Interest Rates Keep Dropping. Here’s What Experts Want You to Do
If you’re like most Americans (or Canadians), you don’t passionately follow financial news. You’re not plugged into CNBC and The Wall Street Journal every day. C’mon, that stuff is pretty dull.
Speaking of financial news, here are a couple of dull, boring sentences that might mean a lot to your pocketbook: The Fed made an emergency cut in interest rates. Rates are at all all-time low.
So, what’s that mean for you? It affects your mortgage, your credit cards, your savings account and your student loans. Basically, it’s never been cheaper for you to borrow money.
“I’m telling people to take advantage of these rates and refinance their mortgages or their student loans,” says financial advisor Justin Chidester, owner of Wealth Mode Financial Planning in Logan, Utah. “I’m pretty much telling everyone, ‘Just go get a quote. It’s not going to hurt you to do that.’”
What exactly should you be doing now? We asked three financial planners, and here are four pieces of advice they gave us.
Conveniently, you can do all this stuff online. You don’t even have to leave your house.
1. Get Rid of Your Expensive Credit Card Debt
“As the Fed slashes rates, we’d also expect your credit card’s annual percentage rate (APR) to follow suit,” says Maggie Johndrow, a financial advisor with Johndrow Wealth Management in Hartford, Connecticut.
So you’ll be paying a little less interest on your credit card balance. The problem is, credit debt is still the most expensive kind of debt you can have. Your credit card companies are still getting rich off those interest charges.
“Get a personal loan to consolidate your credit card debt,” Chidester advises.
A website called Fiona can match you with a low-interest loan you can use to pay off every credit card balance you have. The benefit? You’re left with just one bill to pay every month, and because the interest rate is so much lower, you can get out of debt so much faster.
If your credit score is at least 620, Fiona can help you borrow up to $100,000 (no collateral needed) with fixed rates starting at 3.84% and terms from 24 to 84 months.
Fiona won’t make you stand in line or call a bank. And if you’re worried you won’t qualify, it’s free to check online. It takes two minutes, and it could save you thousands of dollars.
Totally worth it.
2. Save Thousands of Dollars on Your Mortgage
With interest rates at historic lows, it’s a good time to look into refinancing your mortgage. And guess what? You don’t even have to leave your home to do it — and it could save you thousands of dollars.
“If you can knock it down a half-percent, you should seriously consider it,” Chidester says. “If you can drop it a whole percentage point, I think it’s almost a no-brainer. If you think you’re going to move in the next five years, though, you need to look carefully at whether it’s really worth paying the closing costs.”
Head over to an online lender we know called Figure, where you can complete your application for a new loan in as little as 10 minutes.
If you’re planning to stay in your current home for a while, it could totally be worth it. Over the life of a 15- or 30-year mortgage, a mortgage with a lower interest rate could save you tens of thousands of dollars.1
Figure offers home loans up to $1.5 million. It’s worth noting your credit score needs to be at least 640. If you have equity in your home, you could also “cash out” — replacing your existing mortgage with a new one for an amount that’s higher than what you currently owe.
And if you’re not sure you’re ready to commit to refinancing, you can always get a free quote. It never hurts to explore your options, and getting a quote won’t hurt your credit score.2
Don’t dawdle, though.
“As the demand for mortgage refinances increases, lenders may level-off their interest rates or even increase them because there isn’t enough supply to meet the demand. So it would be prudent to lock-in a lowered rate as soon as you can,” Johndrow says.
1 Refinancing at a longer repayment term may lower your monthly loan payments, but may also increase the total interest paid over the life of the loan. Depending on your cash-out amount, your monthly payments may increase, even with a lower APR.
2 To check the rates and terms you qualify for, we will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Figure Lending LLC is an equal opportunity lender. NMLS #1717824 – NMLSCONSUMERACCESS.ORG Terms and conditions apply. Visit Figure.com.
3. Grow Your Money 11x Faster — Without Risking Any of it
You’ve probably heard the best way to grow your money is to stick it in the stock market and leave it there for, well, ever.
But maybe you’re just looking for a place to safely stash it away — but still earn money. Under your mattress or in a safe will get you nothing. And a typical savings account won’t do you much better. (Ahem, .09% is nothing these days.)
But a debit card called Aspiration lets you earn up to 5% cash back and up to 11 times the average interest on the money in your account. Plus, you’ll never pay a monthly account-maintenance fee.
Aspiration also shares part of its earnings with environmental charities, among other worthy causes. So you can stick up for the planet — without even having to write a check.
It takes just five minutes to sign up for an Aspiration Spend and Save account.
4. Finally Pay Off Those Lingering Student Loans
Got student loans? You could probably be paying less interest on those. Refinancing them could help you pay off your debt faster and save you thousands of dollars in interest.
“If you’ve been in college recently, you’re probably coming out with rates in the high 6% or 7%, so you can usually refinance to private loans at a lower rate,” Chidester says.
With companies like Splash Financial, you can take steps to refinance your student loans in minutes. At first, it might sound like you’re just moving your debt around, but the key is to find a loan with better interest rates (Splash’s fixed-rate loans start as low as 3.48%) and/or lower monthly payments.
“Due to the rate cut, a 10-year fixed-rate student loan average is now around 4.70% and the five-year variable rate loan is averaging 4.03% — both down by double digits from rates in 2019,” Johndrow says.
Getting a free quote won’t hurt your credit score. All you have to do is enter some basic info. (This includes your Social Security number so Splash can check your credit, but the site is bank-level secured.)
If you have a credit score of 660 or higher and an annual income of at least $40,000, you should have a good chance of qualifying.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He actually follows financial news really closely.