Here's the latest personal finance news, how it may impact your financial plan and what you can do to maintain your financial well-being.
Federal Reserve Expected to Slow Rate Cuts in 2025
Following more than a year of maintaining 23-year-high interest rates, the Federal Reserve slashed its federal funds rate in three consecutive meetings to end 2024, cutting its rate by a total of 100 basis points, or 1%.
However, the federal agency indicated that it'll take a more conservative approach in 2025, largely due to stubborn inflation numbers. The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, clocked in at 2.4% for November 2024. While that's close to the 2% target rate, it's up from 2.3% in October and 2.1% in September.
Although the Federal Reserve remains confident that inflation will continue to flatten, economic experts are cautiously looking to the potential impact of higher tariffs, tax cuts and immigration in the new presidential administration.
Why It Matters
While experts had reason to be optimistic in the second half of 2024, the economy continues to be plagued by uncertainty. Consumers will benefit from the rate cuts made in the past few months in the form of lower interest rates on credit cards, auto loans and other forms of consumer debt.
However, that relief may not be enough, especially while inflation remains uncomfortably high and new potential economic challenges await.
What You Can Do
- Learn about the federal funds rate.
- Understand how the Fed rate cuts impact your finances.
- Read up on ways you can fight inflation.
- Look for ways to reduce your risks when borrowing money.
Tax Season Is Set to Begin
The IRS has yet to announce when the filing season begins for the 2024 tax year, but it's generally set for the end of January. Whether you're expecting a W-2 form as an employee or a 1099 form as a contractor, your employer or client should send it to you by January 31 at the latest.
Why It Matters
The deadline to file your tax return and pay anything you might owe isn't until mid-April. However, it's a good idea to complete the process as soon as you can to avoid the possibility of falling victim to tax fraud.
If you're owed a refund, the sooner you gain access to that cash, the better.
What You Can Do
- Find out which documents you need to file your return.
- Read up on tips to make tax filing easier.
- Make sure you know the 2025 tax deadlines.
- Figure out what to do with your tax refund.
Department of Education Reopens Two Income-Driven Repayment Plans
In December, the U.S. Department of Education reopened applications for two income-driven repayment plans: The Pay As You Earn (PAYE) plan and the Income-Contingent Repayment (ICR) plan.
Applications were closed in the summer of 2022 when the Biden administration announced the Saving on a Valuable Education (SAVE) plan, which offered more generous monthly payments and eliminated interest accumulation. However, legal opposition to the SAVE plan resulted in the Department of Education placing millions of SAVE borrowers into forbearance.
While those borrowers won't need to make payments in forbearance, they won't get credit toward loan forgiveness for the forbearance period. Switching to the PAYE or ICR plan would allow them to continue working toward forgiveness.
Both programs will be open to new borrowers through July 1, 2027.
Why It Matters
With the SAVE plan and student loan forgiveness under the PAYE and ICR plans in jeopardy, this decision by the Department of Education allows student loan borrowers currently enrolled in SAVE to work toward forgiveness under the Public Service Loan Forgiveness (PSLF) program.
That said, if you're currently in forbearance on the SAVE plan, switching to another repayment plan will cause your monthly payments to resume. You may need to adjust your budget accordingly.
What You Can Do
- Learn more about PSLF and find out if you qualify.
- Get more details about income-driven repayment plans.
- Develop strategies to pay off student loans faster.
- Find out what your options are if you can't afford student loans.
Mortgage Rates Remain Stubbornly High
After a slight dip in mid-December, mortgage rates are on the rise again. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage hit 6.72% toward the end of the year.
Unfortunately, current trends in the 10-year Treasury bond yield, which acts as a benchmark for mortgage rates, aren't helping. The yield, which reflects shifts in investor sentiment about the economy, surged in December following the Federal Reserve's announcement about slowing interest rate cuts moving forward.
Why It Matters
Mortgage interest rates have been uncomfortably high for more than two years now, disrupting the housing market and pushing mortgage payments to record highs.
They largely hovered between 6% and 7% for most of 2024, and with more economic uncertainty on the horizon, it's unclear when housing costs will become more affordable again.
What You Can Do
- Learn how to deal with high mortgage rates.
- Read up on how mortgage interest works.
- Consider whether to buy a house when rates are high.
- Understand the pros and cons of refinancing a mortgage loan.
Good Credit Can Contribute to a Healthy Financial Plan
While there are aspects of your financial situation that are outside of your control, building and maintaining a good credit score can help you weather challenges and save money in the long run.
With Experian's free credit monitoring service, you'll get access to your FICO® Score☉ and your Experian credit report. With this information in hand, you can gauge your credit health and target areas of your credit profile that you can improve over time. And with real-time alerts whenever your report is updated, you can spot potential issues and fraud and address them quickly.