The Fed's record-low interest rate policy is boosting profits at bailed out banks at the expense of savers, investors, pensions and endowments. Thinkstock photo.

U.S. consumers are cutting debt and trying to save more money. The Federal Reserve, in an effort to keep the economy from a double-dip recession, is keeping the benchmark interest rate artificially low. Record-low interest rates are fattening bank bottom lines. The low interest rate has created a wide disparity between what financial institutions can collect from borrowers and what they have to pay depositors for their money. Some analysts are saying that while Fed monetary policies shore up the banks it bailed out with billions, they are an “invisible tax” on savers, investors, pensions and endowments.

Little reward for saving money

U.S. banks are paying savers the lowest average rates on record. A Bloomberg story on a report from Market Rate Insight said that the national average rate paid on interest for checking, savings, money market and certificates of deposit in July was 0.99 percent. The interest rate index produced by Market Rates measures rates and bonuses paid by 1,300 commercial banks and credit unions of all sizes around the U.S. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. When the national unemployment rate goes up, savings rates go down. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.

Banks set up roadblocks to debt reduction

Fed monetary policy that is holding the interest rate at near zero, some believe, is rewarding banks and penalizing the average citizen. People who want to reduce debt and save more seem to have the deck stacked against them. Larry Doyle at Daily Markets writes that miniscule interest rates are squeezing people who live on fixed incomes. Savings accounts generate a negligible returns. Meanwhile, it costs credit card issuing banks next to nothing to borrow money while they continue to raise interest rates on consumer credit.

Low interest rates an invisible tax

The Fed’s interest rate policy may be causing more economic problems than it’s solving, according to Gretchen Morgenson at the New York Times. Todd E. Petzel of Offit Capital Advisors told Morgenson that the Fed’s interest rate policy is an “invisible tax” that costs savers and investors about $350 billion a year. He got that figure by starting with about $14 trillion in debt issued by the Treasury at an interest rate near zero. Rates have averaged 3 percent over time. That makes current rates too low by 2.5 points. On $14 trillion, 2.5 percent adds up to $350 billion a year in lost income to savers, investors. pensions and endowments. The money lost is more than 2 percent of gross domestic product and almost 3 percent of disposable personal income.

You can solve your debt issues

There are many ways to permanently solve your debt issues. Unfortunately, none are easy, and all require personal and absolute commitment to resolution and even more importantly, personal accountability and acceptance that you are indeed responsible or, at the very least, partly responsible for your current situation. No matter how you find yourself here, there is hope and help available to get you out of financial trouble. Here are some easy changes you can make right now to get yourself out of debt.

Make your monthly budget

First, establish a realistic monthly budget. Take a hard look at where your money goes and evaluate the difference between a want and a need, cutting out discretionary spending such as dinning out, movies, cell phones, and yes, perhaps even cable television. Be creative in finding other ways to entertain yourself and your family.

Save it for the emergencies

Once you have a budget established and have trimmed out all the excess, learn to use cash when you make your purchases. This will develop a good, long-term habit and keep you from piling on more debt. Again, if you don’t have it, you shouldn’t be spending it. If you find that you must keep one credit card for emergencies, do not carry it in your wallet. Save it for emergencies only, and again, even emergencies can be handled for a lot less money when you get creative about your requirements.

If your refrigerator quits, there is nothing that says you must purchase a new one with a credit card. Check your daily newspaper for garage sales, or other listings specifically selling used appliances. The Salvation Army and other secondhand or consignment stores are great places to look for used, working appliances.

Consider your location needs

Also, evaluate your current living situation. Your housing should never be more than 33 percent of your household income. If you rent, consider a less expensive apartment. Consider your location, too. If you live in a highly desirable complex, you can bet you are paying a premium to live there. If you own your own home and you are paying more than 33 percent, then consider shopping around for lower insurance, refinancing your mortgage, and shopping around for more economical utility plans.

This is just the beginning, and there are many more ways to begin your journey down the path toward financial freedom and living debt free.

The answer is definitely yes. Let us consider how!

• Using home equity loans as collateral serves various purposes. It covers the cost of your home repairs, medical bills, college education and other related charges. It comes along with a security interest that helps in reducing the actual home equity. Thus, you can expect to save a considerable amount of money in the long run if you had a good credit history before.

• The home equity loans are short termed, so it is possible that the rate of interest will be lower. You can also get a deduction on your personal income taxes if you are well informed about the terms and conditions of the loan. Sometimes the loans are termed as recourse loans, where the borrower remains personally liable to the loan. This may be a problem as the handling requires lots of skill and expertise. For that matter, you can get in touch with a debt negotiation or a debt consolidation company who can carry forward the assignment on your behalf.

• The advantage with a home equity loan is that it converts an unsecured debt to secured debt. In case you fail to pay back the borrowed amount, the creditor takes possession of the assets you use as collateral. If the asset is a house, the repayment becomes easy, as the creditor can sell the asset and get the money. If it is something else, then the procedure becomes pretty tough. Moreover you have the option to choose the timing and the amount you would like to borrow. You can avail up to 100 percent of the value of a home. The line of credit can extend up to 30 years or more at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Thus, when you pay back, your interest automatically decreases. By making the interest tax deductible, you save  money.

• With home equity loans you can select the type of loan that suits you best. Generally, they are of three types: fixed-rate installment, lines of credit, and a combination of the two. Fixed-rate installment loans provide you a specific sum of money at a fixed rate of interest for a specific period of time. But the monthly payment and interest remain the same till you pay back. With lines of credit loan, you have to keep your home as the security, but you can borrow the maximum amount of credit you need and can repay with varied rate of interest. But by far the best is the combination of the two, which allows you to select the amount and fix the interest rate. Thus you can repay as per your convenience and consideration.

• Using a HELOC bank account will enable you to write checks on the equity of your home. This can save you from increasing your debts on your credit cards.

Consider other options

But the fact remains that you have to consider the other options, as well, in case something goes wrong. If the debt you owe is huge, it would be better to negotiate debt settlements with your creditors. The ultimate purpose is to  reduce or eliminate your debts and keep from getting into further debt.