Federal Reserve Cuts Rates Again: Impact on Debt and Potential Relief Measures

Federal Reserve Cuts Federal Funds Rate

The Federal Reserve has reduced the federal funds rate for the second time this year due to factors such as slow job growth, an increase in unemployment, and consistent inflation.

The Federal Open Market Committee lowered its benchmark rate by 25 basis points to fall between 3.75% and 4.00%. Early indicators suggest a third rate cut this year when the committee reconvenes in early December.

Impact of Lower Rate Environment

A lower-rate environment may not be beneficial for savers who have been enjoying higher yields on savings accounts and CDs. However, it’s advantageous for Americans working to become debt-free.

With consecutive quarter-percentage-point rate cuts in September and October, debt consolidation loans are particularly beneficial to consumers grappling with credit card bills, personal loans, auto financing, and other debts.

Debt Consolidation Benefits

Eligible borrowers can qualify for a lower interest rate and consolidate multiple debts into one simplified monthly payment. Your lender often pays your creditors directly, eliminating the risk of repossession in the case of an auto loan.

Debt consolidation terms typically range from one to seven years, though some lenders offer longer options. While a longer term means lower monthly payments, you’ll be charged more in total interest over time. Therefore, experts recommend opting for the shortest term you can afford.

“If they can reduce any high-interest loans that they have — credit cards, personal loans or car loans — then there might be an opportunity to refinance their current loans and increase their monthly cash flow,” suggests Dana Menard, founder and lead financial planner for Twin Cities Wealth Strategies. “Or just eliminate debt altogether, which is always a superior option.”

Escalating U.S. Credit Card Debt

As of the second quarter of 2025, U.S. credit card debt hit a record $1.21 trillion, rising by $27 billion from the previous quarter. Auto loan delinquencies, defaults, and repossessions have also increased in recent months due to the average monthly car payment exceeding $750.

“Paying off high-interest debt in a lower-rate environment should be prioritized over saving or investing,” advises Menard. Especially with the average credit card interest rate at 24.19%, which surpasses any potential market gains.

“Especially this close to the holidays, when spending typically increases, it’s good to eliminate high-interest debt as quickly as possible,” adds Menard.

Investment Strategies in the Current Market

Victoria Fernandez, chief market strategist at Crossmark Global Investments, suggests caution for investors in the current high-risk bull market.

“We are seeking companies with robust cash flow, solid earnings, and the ability to withstand a potential economic slowdown,” she told CNBC Select. Fernandez recommends investment in big banks and the healthcare sector, including biotech firms, along with high-yield fixed-income investments like U.S. Treasuries or investment-grade corporate bonds, for steady cash flow.

For those concerned about tariffs increasing inflation, Fernandez suggests considering Treasury Inflation-Protected Securities (TIPS), which adjusts its principal value to keep up with price increases. She advises steering clear of meme stocks, junk bonds, and commodities whose prices can fluctuate rapidly, posing a risk to your investment.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.