How to take advantage of low interest rates and save money on 4 different kinds of debt

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When the Federal Reserve cut its benchmark interest rate to zero last month, it was taking a preemptive step toward mitigating the effects of the coronavirus outbreak on the economy. While no one knows how long those effects will last, the Fed is indicating that it isn't likely to increase interest rates any time soon — not until the economy begins to recover, post-pandemic.

The rate in question is the federal funds rate, which is what banks charge each other for short-term borrowing. It influences the rates set on consumer financial products like mortgages and credit cards. When the Fed lowers the federal funds rate, the rates for those products tend to fall as well.

For consumers, low rates may prove to be another helpful tool as they weather the pandemic: They can use the low-rate environment to refinance their existing debt to save money on interest and help them knock out balances faster. For example, let's say you have a credit card balance of $9,300 and make monthly payments of $250. If your APR, or annual percentage rate, drops from 19% to 18%, you would save $442 in interest. You'd also pay off the debt two months earlier than you would have otherwise.

"Any debt you have, try to refinance at the lowest rate possible," says Glen Smith, a certified financial planner at Glen D. Smith & Associates in Flower Mound, Texas. 

Here's how to do that with four kinds of debts:

Credit cards

There are a couple of ways you could take advantage of lower rates when it comes to credit cards:

How balance transfer credit cards can help you pay off debt

Video by Ian Wolsten

Student loans

While you can refinance your student loans, whether or not it's a good idea for you hinges on the types of loans you have. For instance, it may not be wise to refinance a federal student loan, because doing so could strip you as a federal student loan borrower of protections and benefits, including forbearance, deferment, income-driven repayment plans, and public loan service forgiveness plans.

If you have private loans with variable rates that may be tied to the fed's benchmark, though, it can be worth shopping around to see if you can take advantage of lower rates by refinancing.


Refinancing your mortgage can save you thousands of dollars, but it's not always easy or cheap. You'll need to consider whether you can afford the cost of doing so and if it makes sense with your future plans.

You should also keep in mind that the current economic downturn due to the coronavirus could make it more difficult to refinance, as many lenders are toughening the requirements to qualify.

Is now a good time to refinance your mortgage?

Video by David Fang

Personal loans

You can refinance personal loans, too. If you've previously taken out a personal loan in order to consolidate your debt, it may be a good idea to check and see if you can get a better rate and potentially save some money.

Don't rush into refinancing, experts warn. Take your time to assess the terms and costs, and consider if it's the best move for you.

There's another benefit to taking time to consider your options: Lenders aren't always quick to pass along the Fed's rate cut in the form of cheaper borrowing. 

"People won't see the impact of this immediately. These rate reductions tend to be passed along within a couple of billing cycles," Matt Schulz, an industry analyst at Compare Cards, recently told Grow.

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