10 Moves People Living on $50K Should Make When Interest Rates Cool Off

The Federal Reserve has been hinting that it will cut its target federal funds rate soon, possibly as early as September. Once it finally lowers the rate, additional cuts could follow.

If you are living on an income of $50,000, the rate cuts might give you a great opportunity to make strategic financial moves. Whether you are aiming to build wealth , supplement your income, or eliminate some money stress, getting ahead financially now can set you up for success in the long run.

With interest rates potentially dropping, here are some money moves you should consider now.

1. Get a broad overview of your finances

Before making any significant financial decisions, get a clear understanding of where you stand financially. Assess your income, expenses, debts, and savings to identify areas that need improvement.

By knowing exactly what you are working with, you can make informed decisions that align with your long-term goals. This step will also help you pinpoint any potential money leaks and make necessary adjustments so you can boost your bank account .

2. Lock into a CD

If you have some savings set aside, consider locking into a certificate of deposit (CD) before interest rates drop further. CDs typically offer higher interest rates than regular savings accounts, providing a secure way to grow your money.

With rate cuts possibly on the horizon, locking in now ensures you benefit from the current rates, which may not be available for much longer.

3. Look for long-term CDs

When choosing a CD, consider opting for a long-term option rather than a short-term one. By locking in for a more extended period, you can continue earning at a higher rate even if interest rates decrease.

This move can help you build wealth over time without the risk of your savings losing value due to falling rates.

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4. Consider a HELOC instead of a home equity loan

If you are a homeowner and need access to cash, a home equity line of credit (HELOC) may be a better option than a home equity loan.

HELOCs typically offer variable interest rates, which means your costs could decrease if the Federal Reserve cuts rates. This flexibility allows you to borrow what you need, when you need it without locking into a fixed rate that might be higher than necessary.

5. Look for a home if mortgage rates fall

If you have been considering buying a home, lower interest rates could be a blessing.

While there is no direct relationship between the federal funds rate and mortgage rates, the two rate types do tend to move in the same direction.

If mortgage rates do fall, it would likely mean more affordable monthly payments. That can help you secure a better deal on a home. Start preparing now by getting your finances in order and keeping an eye on market trends so you are ready to capitalize on lower rates if they materialize.

6. Consider an ARM instead of a fixed-rate mortgage

Adjustable-rate mortgages (ARMs) may become more attractive if rates continue to drop.

Unlike fixed-rate mortgages, ARMs offer rates that adjust over time based on market conditions.

So, if rates fall, your borrowing costs also might diminish.

7. Consider a mortgage refinance

If you already own a home, refinancing your mortgage after rates have dropped could be a smart move. Refinancing can lower your monthly payments, reduce the total interest paid over the life of the loan, and free up cash for other financial goals.

However, it's crucial to wait until rates have dropped sufficiently to make the most of this opportunity. Also, even if rates do fall, they might not fall far enough to make a refinance worthwhile for those who were fortunate enough to get a very low mortgage rate a few years ago.

8. Prepare for a recession — just in case

While lower interest rates can be a good thing and often spur economic growth, they can’t automatically prevent a downturn. So, it’s wise to prepare for the potential of a recession by building up your emergency fund, cutting unnecessary expenses, and securing stable sources of income.

By being proactive, you can safeguard your financial health and avoid making mistakes that could set you back.

9. Stay the course with your investments

Market volatility can be unsettling, but it's important to stay the course with your long-term investment strategy.

Selling off investments in a panic could lead to permanent losses. On the other hand, sticking to your plan might allow you to ride out fluctuations and potentially benefit from market rebounds.

Consistency is key to building wealth over time, so continue making regular contributions to your retirement accounts and other investment vehicles.

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10. Keep paying down debt

Interest rates may be cooling off, but that doesn't mean it's time to ease up on paying down debt.

Even with the potential for lower rates on your debt in the near future, there is no time like the present to crush your debt . Whether rates are high or low, you will improve your financial standing immeasurably by paying off high-interest loans and credit card balances.

Bottom line

As interest rates cool off, those living on $50,000 have a valuable opportunity to make strategic financial moves that can help them get ahead financially .

Whether it's locking in a high CD rate, paying down debt, or preparing for a possible recession, taking action now can position you for greater financial security in the future.

Remember, making smart money moves today can set you on the path to long-term success.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt . Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).