If you have a credit card, car loan, mortgage or student loan, This announcement could save you Money!!
On Wednesday this week, the Federal Reserve announced that it was going to cut interest rates by half of a percentage point. Half a percentage or better known in the Biz as ‘50 basis points’ from 5.25% down to 4.75%. While you may not think this makes a difference to you immediately. What it means to you, is that the cost of borrowing money is going to come down. Again, if you have a loan of any form with a Variable interest rate — such as a credit card or student loan — it could result in a lower interest rate, and save you money.
Now, getting too deep into the weeds as it relates to the Federal Reserve and interest rates isn’t really in your best interest, nor is it what Money Vehicle does, we are here to translate what this conversation around money means to you. For a long time, interest rates in the United States were very low, 0% after the 2008 crisis and almost 0% during the Pandemic. The Federal Reserve, which controls the rate, raised them after the pandemic to try and slow inflation — making money harder to get by increasing the cost to borrow AKA interest. Shortly after the Pandemic, prices were going up, and the Fed increased interest rates to try and slow the rate of increases.
Well, increasing the Federal Funds Rate accomplished that mission of slowing the economy down. Now, a few years later the Fed sees a problem going the other way! They need to increase the economy and are lowering rates to try and give the economy a little bit of juice, as unemployment has increased a bit over the past year.
I know — it gets complicated. But again, what is important for you to know is that lower interest rates means that money is cheaper and that people and companies will begin using leverage or debt to accomplish goals.
Now we know the relationship with debt can be tricky and understand that to have a good Credit Score we must play the Credit Game, not just ignore it. Money Vehicle has been a big proponent of borrowing responsibly. Opening a credit card can help build your credit history and score, which will ultimately help you get better terms on bigger loans, like a mortgage or auto loan.
So, yeah, this announcement is important. And how it will impact the bigger economy is important to keep in mind. Lower rates are generally more friendly for businesses, who may borrow money to expand operations, like building a new factory. New factories need workers, which means more jobs. You might be one of those people looking for a job.
Also, we do want to warn you from thinking just because there are lower rates now than there were a couple of months ago that you should go out and borrow money that you don’t need. That’s not how you USE money. Only borrow what you need and make sure you have a RICH goal set for the purpose of the Loan. Show people you speak the language of money by using Debt as a tool, and not letting it make you one.
