Top money moves ahead of a Fed rate cut, according to experts

Last week, Federal Reserve Chair Jerome Powell all but confirmed that an interest rate cut is coming soon.

“The time has come for policy to adjust,” the central bank leader said in his keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming.

For Americans struggling to keep up with sky-high interest charges, a likely quarter-point cut in September may bring some welcome relief — especially with the right preparation. (A more aggressive half-point move has a roughly a 1-in-3 chance of happening, according to the CME’s FedWatch measure of futures market pricing.)

“If you are a consumer, now is the time to say: ‘What does my spending look like? Where would my money grow the most and what options do I have?'” said Leslie Tayne, an attorney specializing in debt relief at Tayne Law in New York and author of “Life & Debt.”

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Currently, the federal funds rate is at the highest level in two decades, in a range of 5.25% to 5.50%.

If the Fed cuts rates in September, as expected, it would mark the first time officials lowered its benchmark in more than four years, when they slashed them to near zero at the beginning of the Covid-19 pandemic.

“From a consumer perspective, it’s important to note that lower interest rates will be a gradual process,” said Ted Rossman, senior industry analyst at Bankrate.com. “The trip down is likely to be much slower than the series of interest rate hikes which quickly pushed the federal funds rate higher by 5.25 percentage points in 2022 and 2023.”

Here are five ways to prepare for this policy shift:

With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — most notably credit cards — are likely to follow, reducing your monthly payments. But even then, APRs will only ease off extremely high levels.

For example, the average interest rate on a new credit card today is nearly 25%, according to LendingTree data. At that rate, if you pay $250 per month on a card with a $5,000 balance, it will cost you more than $1,500 in interest and take 27 months to pay off.

If the central bank cuts rates by a quarter point, you’ll save $21 altogether and be able to pay off the balance one month faster. “That’s not nothing, but it is far less than what you could save with a 0% balance transfer credit card,” said Matt Schulz, chief credit analyst at LendingTree.

Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a lower-rate personal loan, Tayne said.