The Golden Era of Debt Payoff: Leveraging Rising Interest Rates for High-Reward Investments

• Author: Jenny Wolff
• Posted: 2024-07-20

Wall Street and all the fine finance-men and women are celebrating news of no Fed rate cuts in the immediate future. While this is good for the economy in general, it does mean a continued blow to the pockets of everyday people. 

No rate cuts translate to a continued rate hike. This could mean higher interest rates on loans, mortgages, etc. It could also mean higher debt on your credit card. This is because the Fed's rate is the basis for your bank's prime rate, which contributes to the Annual Percentage Rate of your credit card.

So how can you benefit from the delayed rate cuts of the Fed? Jumping in on the stock market rodeo can be intimidating, costly, and unpredictable. Realistically speaking, it can also be a hassle to monitor for folks who have a regular day job. 

Experts suggest that the best way to make the most of this delayed Fed rate cut is by tackling the high-interest debt of your trusty credit card. As of 2023, the average interest rate on the charging interest of credit cards was 21.15%. By paying down each dollar of your credit card debt, you could save around 21 cents over a year. Down the line, this could translate to about five times more than what you might earn in a high-interest savings account.

By following these steps, you can accelerate your debt payoff journey and enjoy more immediate and tangible returns on your financial investment.

1. Switch to Cash or Debit

If you're using a credit card while making payments, you could be treading water. Interest will just keep accruing with your continued credit card use, hindering any significant debt reduction. Switching to cash or debit temporarily can be wise. Once debt-free, only then can responsible credit card usage be truly possible.

2. Explore Lower-Interest Alternatives

Lowering debt interest frees up more funds for your principal repayment. Options that you can explore include balance transfer cards with temporary 0% interest rates or consolidation loans with lower rates and longer repayment terms.

3. Ease Up On Investments For Now

Temporarily prioritize paying down high-interest credit card debt for a significant ROI. Pause investing, except for employer-matched retirement contributions. Consider reducing savings and focus on debt payoff to save on interest.