3 ways to follow the Fed's rate cut by Brigitte Yuille bankrate.com

The Federal Reserve's decision to cut a key interest rate may have given you the break you need to avoid financial pitfalls and improve your financial situation.

The Federal Open Market Committee lowered the federal funds rate a quarter of a point, to 4.5 percent, in an effort to stimulate the economy and forestall effects from the housing market slump.The interest rate cut lowers the cost of borrowing money and provides consumers the opportunity to take advantage of the reduced cost, explains Michelle Jones, vice president of counseling at the Consumer Credit Counseling Service of Greater Atlanta.

The counseling agency suggests that you may benefit from the following moves:

Consolidate your debt
This is a good opportunity for you to make your debt more affordable and payments more predictable. Gather all your high-interest balances and put them into one low, fixed monthly payment.

Get a better loan
Call up your bank and find out if it has cut rates on various loans. If you have any high-interest-rate loans or loans with adjustable rates, you can speak with a loan officer to see if you can get a fixed-rate loan at a lower interest rate instead.

Struggling homeowners have a good opportunity here, says Jones.

"Lenders may be willing to refinance to a fixed-rate mortgage even if you are one or two payments behind on a recently adjusted ARM," says Jones.

She says this is possible because the lender wants to see if your current delinquency resulted from an increase of your mortgage payment.

Also, check to see if the current rate on your home equity loan or line of credit will drop as well as your monthly payment. If it doesn't, find out if competing banks have lower rates.

Jones warns that using a home equity loan to pay off credit cards is not the right answer for everyone, no matter how low the interest rates. She says for a home equity loan to work, you have to be able to afford your living expenses without relying on the cards.

If you've reduced credit card debt and have been making timely payments, you may qualify for a lower interest rate. Take this time to shop around and find a lender.

Save money
Now that you've made some adjustments, the money that would have gone toward those high-interest payments can be used for other opportunities, such as starting a retirement savings plan or repaying debt more quickly.