Here's How Much the Fed Rate Cut Will Actually Save You on Credit Card Debt

The Federal Reserve has just announced a 0.25-percentage-point rate cut. That means credit card APRs will likely drop within a couple of billing cycles.

But don't get too excited yet.

If you're carrying credit card debt, then you'll save very little money thanks to the rate cut. Here's why -- and how you can save a whole lot more and pay off credit card debt faster.

Why the rate cut won't save you much money

Credit card issuers often don't cut their rates as much as the Fed does. Every company sets its APRs based on its own policies.

And even if every credit card's APR dropped by 0.25 percentage points now, it wouldn't save you much money.

Example

Let's say you have $10,000 in credit card debt at 21% APR, and you're paying $500 a month (without making new charges). Here's what it takes to wipe out your debt, with or without an interest rate cut.

So the rate cut would not help you to pay off your debt any faster, and it would only save you $38 over two years.

How to save real money on credit card interest

If you have credit card debt, there are two big ways to pay it off faster and save a lot of money.

Apply for a balance transfer card

Balance transfer cards let you press pause on interest charges for one to two years. Here's how it works:

• You transfer existing debt to your new balance transfer card. You'll need to pay a fee, which is usually 3% to 5% of the amount transferred.
• You'll pay 0% intro APR for 12 to 24 months, depending on the card.
• Once the intro period ends, you'll pay a high APR on any outstanding balance.

It's possible to save hundreds or thousands of dollars if you pay off your balance before the intro period ends.

Let's go back to our example, where you owe $10,000 on a card with 21% APR, and you're paying $500 a month. A balance transfer card with 0% intro APR for 21 months could save you about $2,000 or more.

One of Motley Fool Money's best balance transfer card picks, the Wells Fargo Reflect® Card (rates and fees), offers 0% intro APR for 21 months from account opening on qualifying balance transfers and 21 months from account opening on purchases (then a 17.99%, 24.49%, or 28.74% Variable APR applies). It also has a $0 annual fee.

To see if you could get nearly two years to repay debt interest-free, click here to learn more about the Wells Fargo Reflect® Card and apply today.

Increase your monthly payment

A balance transfer card isn't a magic bullet. Not everyone will be approved, and even if you are, you want to pay off your debt ASAP.

That's why you should pay as much as possible toward your credit card bill every month. With credit card APRs as high as they are, wiping out your balance should be priority No. 1.

Going back to our $10,000 balance example, paying $600 per month instead of $500 per month would save you $490 in interest -- and you'd be out of debt five months sooner.

So don't get discouraged. Every extra dollar you pay now could save you several dollars in the long run, so you can start small and work your way up.

Ignore the Fed and buckle down

The Fed's quarter-point rate cut may sound like big news, but for credit card borrowers, it barely moves the needle. It might save you a couple of dollars a month. The real power lies in taking action yourself: moving debt to a balance transfer card, and/or paying more and more each month.

Small changes you make today can save you hundreds or even thousands over time -- far more than the Fed ever will.