Jesse Jones: What a rate cut means to you

The Federal Reserve rate cut of half-a-percentage-point is a big deal. But for your finances, it won’t mean much right now.

Bankrate Analyst Greg McBride says, “We’re going to see interest rates come down pretty meaningfully, but it’s going to take a while. You’re not going to see immediate impacts on your consumer debt. But you look back 6 or 12 months from now, that’s where the cumulative effect will start to add up and it’ll be the difference will be more noticeable.”

As for the other personal debts families take on, credit cards are at the top of the list.

According to the New York Fed, US credit card balances reached a dizzyingly high level of $1.14 trillion in the second quarter of this year.

“The average credit card rate is almost 21%. The Fed has to cut interest rates a lot of times. And then guess what? Your rate’s still 19%. It’s going to be high cost debt no matter what. That’s why you’ve really got to prioritize putting the hammer down and getting that debt paid off as quickly as possible,” McBride says.

If you’re looking at buying a new car, McBride says it will take some time for lower rates to impact car payments meaningfully, " I mean, keep in mind, people buying cars right now. They’re taking meaning median payments of about 700 bucks a month. Well, in that case, what’s the difference of $8? And that’s what a half point interest rate cut is on a $35,000 loan. The difference, a half a percentage point, it’s eight bucks a month. Nobody’s upgrading from the compact of the SUV based on eight bucks a month.”

Bottom line, McBride says handle your debt first, then worry about interest rates, “high cost debts going to continue to be high cost debt. Yes, you might have the wind at your back a little bit as interest rates come down, but it doesn’t change the fact that you really have to prioritize and have a game plan for paying that debt back.

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