The better news: Sit tight – they’re coming down lots more. There’s no guarantee, because even weather forecasters can’t get it straight a week out, but with the huge drops in the U.S. and the slowdown in the economy, this one is kind of a no-brainer.
The bad news: It’s only a rate drop and all those bills you have still need to get paid. Kind of like gas prices dropping a couple of cents – real exciting, but not that big a deal in the big picture. But every bit helps…
If you’ve got debts ranging from mortgage loans to cars, lines of credits to credit cards, some will be affected, some won’t.
We’ll talk about mortgages and what to do if you’re in the middle of a fixed term in a couple of months when they come down some more. Yes, there is help and hope for you. But If you have a variable rate, or floating rate right now, your payment is coming down. If you’re mulling changing it to a fixed rate one – hang in there for the next couple of rate decreases before you lock it in.
Anyone considering borrowing when the rate goes down – your payments will be lower, and that’ll save you money – a little bit. But it’d be great if you held off a little longer for a few more rate decreases. Drive your car a little longer, get that line of credit a little later (if at all), or if you’re in the market for a home get the pre-approval in place now (it’s good for 60 to 90 days) to lock in the rate and lenders WILL give you the lower rate at the time you’re closing approaches.
If you’re looking to buy a new vehicle make sure to get the price from the dealer using either the rebate OR the cool rate they may offer. That cool rate just got less attractive so take the net price after the cash rebate and get a quote from a credit union. Very often the rebate and prime rate financing is better than the 1.9 or 2.9 the dealer has! But you’ll never know if you don’t do the comparison shopping!
Your credit cards won’t change at all – sorry. They’re around 19% average, they’re a rip off, and they ain’t moving – there’s way too much profit in the high rates they charge and you’re paying it so there’s no way they’re coming down. But until you really really believe they’re a rip-off, you’re not likely to get angry enough to change to a debit card and stop using credit cards altogether.
Lines of credit, however are all based on the prime interest rate. If it’s secured by your home, the payments are interest only, or if it’s an unsecured line it’s generally three percent payments. Those will drop. But why do you have the line of credit in the first place? If it was for an emergency, you’ll have a zero balance and it won’t matter.
If you do have a balance, don’t lower your payments with this interest drop. Keep paying what you’ve been paying. This is a huge opportunity to be able to pay the same amount of money but more of it will go to principal and you’ll have it paid off faster.
That applies to all of your borrowing. Is it to tread water and pay as little as possible or is it to use this rate decrease to step up to the chance to pay it off quicker? Only you can decide but there’s nothing like financial freedom with NO debts and monthly payments.