3 Things to Do Before the Federal Reserve Cuts Rates Again

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Every time the Federal Reserve gathers to change the federal funds rate, there are real ripple effects — good and bad — for your budget and finances. The federal funds rate dropped by half a percentage point, and projections show that the rate is likely to decrease more in the coming months and years. So even if you missed the window for making smart money moves before that decision dropped, you still have an opportunity in front of you.

Here are three things to do before the next likely rate cut.

1. Focus on improving your credit

If you’re planning to take out any major loans, like a mortgage, in 2025, now is the time to focus on your credit score. That way, if rates come down in the future, you’ll be able to truly capitalize on those savings by getting the lowest rate possible.

Let’s say you have a $280,000 mortgage with a 30-year term. You’d save about $52,000 by going from a 6.5% rate down to 5.8%.

The first step is to check your credit score so that you know where you stand and can watch your progress. From there, the two biggest factors that can help you move the needle are making sure your payment history shows on-time payments (this is 35% of your FICO® Score, which is what most top lenders use) and reducing your debt (which is 30% of your FICO® Score).

2. If you’re considering a CD, get it now

Falling rates can be useful for loans, but it also means that rates on certificates of deposit (CDs) will likely also fall over time. The first rate cut may have already reduced your potential gains, but if you’re considering a CD, it’s best to open one now, rather than after future rate cuts further reduce your gains.

A CD lets you lock in an interest rate at the time you open it, so the faster you move, the better your chances of securing a higher rate before the next Federal Reserve rate cut.

3. Pay down credit card debt

Fed rate cuts may provide some relief for high-interest debts, like those held on credit cards, but the effects might be slower than you expect. And ultimately, this type of debt is always going to be an extra expense that prevents you from progressing on more exciting goals, like buying a home. So it’s best to work on paying off that debt ASAP, regardless of what may happen with interest rates going forward.

The first step to getting out of debt is creating a payoff plan. That means understanding exactly how much you can budget toward this plan. Be sure to make room for savings along the way (and the sooner the better as that will help you access today’s higher rates). Then it’s all about sticking to the plan and being patient.

If you’re in a position to capitalize on the relatively high-rate environment, taking the steps above can provide a welcome boost to your finances. But since future rate cuts are always theoretical (until they’re made official), it’s vital to stick to good money management rules of thumb, like paying off debt and saving for emergencies.