The Truth about Lower Interest Rates

Credit cards: If you have credit cards with variable interest rates, you may get a break and see your rate drop a little bit. Cards with fixed rates probably won't see too much change in the near future, although some rates may start to trend a little lower.

Mortgages: We don't expect the cuts to make much of a short-term difference to borrowers, nor will they ease credit standards to make borrowing easy again. What's done is done, and a lot of people are in trouble. Actually, it affects all of us. For more details - including tips for what you should do if you are unable to make your mortgage payments - see Mortgage Meltdown: What the Sub-Prime Mess Mean for You.

Car loans: Rates have already eased a little here, but don't expect any serious reduction in rates - at least not from the Fed's decision. Some auto makers are currently offering lower rates as incentives, but that's more to clear out inventory than it is because of the Fed.

Student loans: Once again, if your loan has a variable rate, you will probably a slightly lower rate. But hey, you'll take it, right?

CDs/Money Market Funds: This is the "mixed" part of mixed blessing. How else can we say it? Lower interest rates means you earn less on your cash. We actually have serious concerns about some money-market funds in this current environment. Be sure to read our special Investor Alert for important information you need to know.

Dolan Smart Money Moves

Here are four moves we recommend you make now to get the most out of your money when interest rates are dropping:

1. Consider putting some of your money in longer-term CDs to lock in some attractive yields before interest rates drop again. If you don't want to tie your money up for longer periods, consider three- and six-month Treasuries for short-term safety and liquidity.
2. If you have an adjustable rate mortgage, switch to a fixed-rate mortgage TODAY if you plan to stay in your home for the foreseeable future. With housing sales so weak in many parts of America, you're likely to stay put for awhile.
3. With lower rates, consider establishing a home-equity line of credit -- for emergencies only! You don't pay anything unless you use it. (For more of our advice on emergency sources of money, see our Dolans' Debt Clinic Part II. )
4. Be aware of any dates on which your student loan(s) may adjust. You're likely to see a slightly lower rate, but stay on top of it to make sure and contact your loan company if you don't get the break you're expecting.

All eyes will be on the Fed once again in future meetings. Chairman Ben Bernanke and his cohorts have to be extremely careful. If they cut rates too much, they increase the risk we get on the path to another "easy money" situation that put so many lenders and borrowers in jeopardy to begin with.

We'll be sure to keep you informed and give you more tips to help you make the smartest decisions about your money.

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