How to Benefit from Low Interest Rates

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RatesMost personal finance experts will tell you that you should spend less than you earn. In 99.9% of cases, that’s flawless advice. We’re now living in one of those 0.1% scenarios where low interest rates are almost begging you (Bernanke and Co. are certainly begging you) to start spending more than you earn because the cost to borrow money is so unbelievably cheap.

Savers are being, as much as savers can be, crushed. Low interest rates means that we’re getting about a penny per dollar each year in an online savings account – a penny! Lock your savings into a CD and you can maybe get two pennies a year.

So how can you benefit from low interest rates? It’s quite easy… borrow more.

Buy a House

While I don’t actually believe people should be spending more than they earn but whenever you buy a house, that’s basically what you’re doing when you sign up to be a homeowner. Fortunately, interest rates are absurdly low right now. I always look at the publicly listed rates on Wells Fargo to give me a good idea and they’re at historic lows. 30 year fixed loans are just over 4% (they were under 4% just a few weeks ago) and 15 year fixed loans are a bit over 3% for conforming loans. If you already own a house, consider refinancing, especially if you can do it on the cheap.

Curious if rates will go up in the near future? While it’s not a perfect methodology, I tend to look at U.S. Treasury rates for insight. My feeling is that U.S. Treasuries are 100% safe investments that a bank can make so it’s an absolute floor for interest rates. Watching where those rates move can give us an idea if we believe rates will go up or down… but given that and publicly stated Fed policy, I suspect rates will remain stable (won’t go up or down) until there’s a policy change.

Refinance Other Debts

If rates are low for mortgages, it would stand to reason that they are low for other loans as well. If you have any large debts, such as credit cards, try getting a lower cost loan to help you pay it off. 0% balance transfers are a good option though you only get 0% for a year or so. If you can get a personal loan from the bank, perhaps after the 0% offer, you can lock in a lower rate for a longer period of time. Those loans will not be easy to get, even if you have a good credit score, but they will help your financial situation in the long run (and stop accruing credit card debt!).

If you don’t want to go through all the trouble of getting a loan, you could always call the credit card company and ask for a lower rate. 🙂

Before you go, I want to make one final point – don’t buy something just because rates are low. Don’t buy a car if you don’t need one, don’t buy a house if it’s not in your plans, and don’t rush to make a decision because you think rates will go up. Your decisions should be made based on other factors, with interest rates being the gravy. And trust me, rates are not going up anytime soon.

(Photo: andrewmorrell)

{ 3 comments, please add your thoughts now! }

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3 Responses to “How to Benefit from Low Interest Rates”

  1. Kara says:

    I called my credit card company for a lower interest rate, but they said it’s an automated system and I had no chance.

    I pointed out that I’ve been a loyal customer for years. Still, no help. It may have hurt that I’ve always paid it off in full and now I’m carrying a balance. 🙁

    Any tips on how I may be able to get them to lower it? Anyone been in this boat before and can share advice?

  2. Antonia says:

    Yes, you might tell them that you will not be using their card anymore. Tell them that you can get a better rate somewhere else. It might work if your credit is good.

  3. Daniel says:

    I have a credit card that had an available credit of $3500. I was carring a balance close to the limit. They lowered the limit to $250. I have been paying more the minimum each month to get it paid off. However, it looks bad on my credit report. I did not over charge, they lowered the limit. I asked why they did this and they said it was their new company policy to lower all credit limits, I guess they were over extended. I do not want to charge any more as I pay it down. I dont think this was fair of them to do, the way it shows up on my credit report. what can I do? Anything?

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