CBS News
How the Fed rate cut can help you tackle credit card debt
Getty Images
This week, the Federal Reserve made headlines by conducting its first rate cut of 2024. While most analysts expected a modest 25 basis point reduction, the Fed surprised markets with a more significant 50 basis point cut, lowering its benchmark interest rate to a range of 4.75% to 5%.
This rate cut is welcome news for borrowers, as the Fed’s interest rate decisions influence the rates offered on various types of loans, from mortgages to auto loans. When the central bank lowers its rate, borrowing typically becomes cheaper. And in a time when debt is a growing burden for many Americans, any reduction in borrowing costs can make a big difference.
One group that could see big benefits from this rate cut is those carrying credit card debt. The total credit card debt nationwide now sits at a record high of $1.14 trillion and about 20% of cardholders maxed out, so millions of Americans could see some much-needed relief. But credit card rates don’t always fall significantly following a Fed rate cut, so how can the Fed’s decision help you tackle your card debt?
You have lots of options for tackling your high-rate card debt. Find out more here.
How the Fed rate cut can help you tackle credit card debt
There are a few ways the Fed rate cut could make it easier to get rid of your high-rate credit card debt, including:
By making it less expensive to consolidate debt
One possible outcome of the Fed rate cut is the potential to make debt consolidation more affordable. Debt consolidation involves taking out a new loan to pay off multiple existing debts, ideally at a lower interest rate. With the Fed’s rate cut, personal loans and debt consolidation loans — two popular tools for debt consolidation — may become more attractive options.
With average rates of about 12.5%, personal loans are already one of the most affordable borrowing options available, and these loans could see a further decrease in their interest rates, making them an even cheaper route for consolidating credit card debt. Similarly, the loans offered by debt consolidation programs might offer more competitive terms in the wake of the rate cut. So, by using one to tackle your debt now, it could be much cheaper to pay off what you owe.
Explore the debt relief options available to you now.
By making home equity borrowing cheaper
Another potential way the Fed rate cut can assist in tackling credit card debt is by making home equity borrowing more affordable. Home equity loans and home equity lines of credit (HELOCs) are typically offered at lower interest rates compared to credit cards, as they are secured by your home. And with the Fed’s rate cut, these already competitive rates could become even more attractive.
If you’re carrying significant amounts of card debt or need to roll multiple card debts into one loan, these borrowing products could allow you to access higher amounts than the average personal loan. That said, it’s important to approach this strategy with caution. You’re putting your property at risk if you’re unable to make payments, so it’s essential to have a solid repayment plan before pursuing this option.
By potentially lowering variable APRs on existing credit cards
While the impact may not be immediate or drastic, the Fed rate cut could lead to a slight reduction in the variable APRs on existing credit cards. Most credit cards have variable interest rates that are tied to the prime rate, which is influenced by the Fed’s benchmark rate.
As the prime rate decreases following the Fed’s cut, credit card issuers may lower their variable APRs accordingly. While this reduction might be modest, even a small decrease in your credit card’s APR can lead to savings over time, especially for those carrying large balances. It’s important to note, though, that these rate adjustments aren’t automatic or guaranteed.
Other options for tackling high-rate credit card debt
While the Fed rate cut opens up new possibilities for managing credit card debt, it’s worth exploring other available debt relief options:
- Debt management: A debt management plan can help lower your interest rates or reduce card fees while giving you a clear plan for paying off your debt, making the process cheaper and more efficient.
- Debt forgiveness or settlement: This option involves negotiating with creditors to settle your debts for less than what you owe, which could reduce your total balance by 30% to 50% or more in some cases.
- Negotiating with creditors: Some credit card companies may be willing to lower your interest rate or waive certain fees if you explain your financial hardship and have a history of on-time payments.
- Bankruptcy: As a last resort, bankruptcy can provide a fresh start for those overwhelmed by debt, but it also has long-lasting consequences.
The bottom line
While the Fed’s recent rate cut may not directly slash credit card interest rates, it does create a more favorable environment for tackling credit card debt. By potentially making debt consolidation and home equity borrowing more affordable, and possibly leading to slight reductions in variable APRs, the rate cut offers avenues for cardholders to address their debt more effectively. Combined with other debt relief strategies, this economic shift could provide the opportunity to work toward a debt-free future.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
President-elect Donald Trump announced Tuesday that former Director of National Intelligence John Ratcliffe is his pick to lead the Central Intelligence Agency.
In a Truth Social post, Trump referred to Ratcliffe as “a warrior for Truth and Honesty” and said, “I look forward to John being the first person ever to serve in both of our Nation’s highest Intelligence positions.”
Al Drago/Bloomberg via Getty Images
Trump has kept up a steady clip of announcements about top aides and nominees for his second administration without as much drama as his first transition following his 2016 victory. He also said Tuesday he had chosen former Arkansas Gov. Mike Huckabee as ambassador to Israel and his longtime friend Steven Witkoff to be a special envoy to the Middle East.
Ratcliffe, who was a GOP congressman from Texas, served as director of national intelligence in the final months of Trump’s first term, leading the U.S. government’s spy agencies during the coronavirus pandemic. He’s viewed as a more traditional pick for the role, which requires Senate confirmation, than some rumored loyalists pushed by some of Trump’s supporters. His last Senate confirmation, for the DNI role, was along party lines.
As intelligence director, he was criticized by Democrats for declassifying in the final days of the 2020 presidential election Russian intelligence alleging damaging information about Democrats during the 2016 race even though he acknowledged it might not be true.
Ratcliffe’s visibility rose as he emerged in 2019 as an ardent defender of Trump during the House’s first impeachment proceedings against him. He was a member of Trump’s impeachment advisory team and questioned witnesses during the impeachment hearings.
After the Democratic-led House voted to impeach Trump, Ratcliffe called it “the thinnest, fastest and weakest impeachment our country has ever seen.” He also forcefully questioned former special counsel Robert Mueller when he testified before the House Judiciary Committee about his investigation into Russian interference in the 2016 election.
As Democrats work to sort out last week’s election results and determine why they lost Latino men in droves, a Latino Democrat and senator-elect has some advice for party leaders and top consultants: “Go touch grass and meet real Latinos.”
CBS News Tuesday projected Gallego as the victor in Arizona’s U.S. Senate contest against Republican Kari Lake. He believes much of his party is out of touch with a key demographic he says they can’t win national elections without.
“There is no winning nationally without Latinos,” Gallego said in an extensive interview with CBS News senior White House and political correspondent Ed O’Keefe Tuesday. “…There’s no path forward into the Democratic Party, into a national party, without Latinos.”
Exit polls show Vice President Kamala Harris lost Latino men to President-elect Donald Trump — a significant blow to a party that’s long relied on them as part of a broad coalition. The results were openly feared most of the past year by Democratic Party leaders and operatives.
Going forward, Gallego said candidates need to go out and find Latinos where they already are. Gallego focused on bringing his campaign to Latino voters — sometimes, without talking about politics at all. His campaign hosted rodeos, boxing match watch parties, and carne asada cookouts. His team took food to construction shift workers at work sites after they’d clocked out in the early morning. Knocking on people’s doors, after shift workers are exhausted and preparing for the next day, won’t work, he said.
“Talk to them. And talk to them as often as possible,” Gallego said. “And don’t expect you to be able to talk to them one way through TV.”
There are “millions and millions” of Latino men out there, Gallego said, and they’re not afraid to speak their mind.
Democrats on the national stage also missed the mark in how they spoke about immigration. Gallego’s first Spanish-language TV ad was about border security. Latinos in Arizona looked at the migration crisis at the border, with refugees pouring into the country, and called it “chaos,” Gallego said.
While campaigning, “We didn’t actually speak about immigration reform because we know that the Latino voter just doesn’t believe it anymore,” Gallego said, meaning, Latino voters don’t believe Washington will actually pass a massive immigration reform bill in the near future.
Instead, Congress needs to focus on fortifying U.S.-Mexico border security first to build trust, he said.
But that message, O’Keefe suggested, may be a hard pill to swallow for fellow Democrats.
“I’m a pharmacist about to give out very hard pills in the Senate,” Gallego said.
Gallego also hinted that Democrats missed the mark on addressing inflation. Born on the south side of Chicago to a Colombian mother and a Mexican father, with his mother raising four children alone, Gallego said he knows what it’s like to grow up struggling. He saw the flashing warning signs on inflation, not just in the polls, but as he talked with his working-class family members and constituents.
“Growing up working class, there’s nothing more hurtful than working hard and then not being able to provide for your family,” Gallego said. “And I instinctively knew that’s what these men were going through.”
“This is the first time I’ve ever seen men say I can’t do this,” Gallego said. “I can’t keep working, and it’s still not making a difference, and that’s when I realized it was really kind of a problem.”
Raised by his mother, Gallego became a U.S. Marine and served in the Iraq war. He moved to Arizona for a local political job, ran and won a seat in the state House before winning his first congressional race in 2014, representing most of Phoenix and Glendale.
He began on Capitol Hill with an outspoken progressive reputation and was among the Democrats calling on the U.S. Senate to abandon the filibuster. But Gallego has shifted his politics to the center in recent years, a reflection of the state’s roughly three-way voter registration split between Democrats, Republicans and independents.
He launched his Senate campaign nearly two years ago, focusing early advertising and outreach on his military service, a key credential in a state with a hefty military and veteran population and a history of electing military veterans, including the late Republican Sen. John McCain, to Congress. With nominal Democratic primary opposition and polls giving him an early lead, independent Sen. Kyrsten Sinema announced in March she would not run for reelection, avoiding a three-way contest.
Until Sinema won her Senate race in 2018, a Democrat hadn’t been elected to the Senate in Arizona in three decades, though Sinema went on to leave the party. Then in 2020, Sen. Mark Kelly, a Democrat, won a competitive Senate race to serve the remainder of McCain’s term after his death.
In his race, Gallego wasn’t about to give up on Trump voters — or any voters, he said.
A rising star in the party — a veteran and Latino who was victorious in a state Trump won — Gallego brushed off questions about a future bid for president.
“Can I rule out running? I can — I can rule out a lot of things,” Gallego said. “First thing I want to focus on is this U.S. Senate race.”
“That’s not a no,” O’Keefe pointed out.
“It’s not a yes, either,” Gallego said, adding a Spanish word for patience: “Cálmate.”
contributed to this report.
