How to maximize your money with the latest interest rate cut – Essence

Last month, the Federal Reserve cut interest rates by a larger-than-expected half percentage point, the first cut since 2020. That could be a good sign for consumers struggling with debt they haven’t been able to pay off, but how exactly? Katrina Fitten, founder of personal finance coaching company A New Day For You Financial, says this is the best time to invest your money properly.

“I say act now because there’s a chance interest rates could go up again right away, and that means you’re going to take on even more unnecessary debt,” Fitten tells ESSENCE. She says there are some important steps to take during this time to take advantage of the lower interest rate.

Refinance.

Fitten says if you have a mortgage, a car or a student loan, now is the time to think about refinancing those things.

“Contact your lender to explore a refinance option to secure a lower interest rate, reduce your monthly payments and the total interest you pay on the loan,” says Fitten.

Apparently her advice is spot on. According to the Mortgage Bankers Association, refinance activity increased to 46.7% of all applications in the week ending Sept. 6, up from 46.4% the week before.

Rebuild your emergency fund.

According to a June 2024 Bankrate report, nearly 6 in 10 (59 percent) of U.S. adults feel uncomfortable with the amount of their emergency savings. Fitten says this isn’t surprising since many Americans are struggling to keep up with the ever-increasing cost of living, which is directly tied to the interest rate set by the Federal Reserve. According to Fitten, topping up your savings can be a little easier.

“Assessing your savings and spending is optimal now because you will likely have more disposable income,” she says. Looking at high-interest savings accounts from banks like SoFi, American Express Savings or Barclays is a great way to put your money to work for you.

Compensatory expenditure.

“Make sure you have a spending plan or a budget because as you already know, when we get more money, our Black and brown communities tend to spend more money.”

After the Fed cut its key interest rate to 4.75% to 5% to curb inflation and assess the struggling labor market, implementing a spending plan is more important than ever, according to Fitten.

“This relief won’t last forever,” Fitten said of the rate cut, explaining that rates could rise again in the coming months. “I firmly believe that this is just a drastic step to stabilize us for now and encourage consumers to go to the supermarket more often, buy personal items and spend money on housing.”

Fitten says she encourages her clients to change their priorities.

“I implore them to spend money on things that are actually assets,” she says. “It’s important to remember to buy things that will make you money, rather than things that are disposable – things that will increase in value over time.”

Look at stock market investments.

In 2020, the Fed cut interest rates to near zero in an emergency measure to stimulate the economy. As inflation began to recover, inflation soon rose and the Fed raised interest rates to decade-long highs in 2022 to counter skyrocketing prices.

As Fitten explains, if a company appears to be reducing its profitability, atrophied or no longer profitable – whether due to its debt expenses or reduced revenue – the estimated level of future cash flows will decrease. This will cause the company’s stock value to decline over time.

If there is a decline in stock prices among a number of other companies, the major stock markets will see a decline in prices, ultimately making the stocks cheaper. Depending on the stock’s activity over time, this could be an incredible win for a shareholder.

“In times like these, investing in stocks is really a coincidence,” says Fitten.

Stocks on Wall Street reached notable highs on September 19 following the Fed’s rate cut. Market experts said the rate cut removed uncertainty about a decision that had been hanging over financial markets for months. The S&P 500 and the Dow Jones Industrial Average have risen significantly in recent weeks. This surge has been led by technology companies, particularly those focused on artificial intelligence. Before buying, however, Fitten recommends learning about the stock investing process before jumping in.

“​​We often forget about the resources available in our communities around financial education,” she says. “Reading articles, watching videos and even going to your local bank to speak to an advisor can be a good first step before moving your money. This is a time we have all been waiting for, whether we realize it or not. Strike while the iron is hot.”