Tips for Managing Debt During Inflation
Navigating through a period of inflation can be challenging, especially if you have debt. Fortunately, there are methods to prevent falling further behind. Here are several tips for managing debt during inflation.
Try Modifying Your Interest Rate
The first tip is to contact your lender and see if it is possible to adjust your interest rate. Lenders understand that finances get tighter during periods of inflation and if you have a good payment history, negotiating a lower interest rate may be possible. Another possible option is to consolidate your debt with a balance-transfer credit card or a personal loan. The key point is to contact your lender before doing anything drastic.
Create a Budget
If you haven’t followed a budget, now is a perfect time to get started. There are many options available online in the form of tracking tools, apps for your mobile device, templates, and other resources to help with this process. In addition, you can also seek the assistance of a nonprofit credit counselor. These professionals can help you create a budget and identify where you can cut expenses.
Focus on a Debt Payoff Strategy
There are two commonly used strategies that people follow to eliminate debt. The first strategy is the avalanche method, where you focus on paying off the debts associated with the highest interest rates first, while making minimum payments on the rest. Then as you clear one, you can allocate these funds toward paying off the debt with the next-highest interest rate.
The second strategy is the snowball method. In contrast, you focus on paying off the account with the lowest balance. This is also effective because you can make progress faster and keep increasing the amount you can pay on your higher debts.
Boost Your Income
Another tip for managing debt is to increase your income. This could be income from a second job or you might even have a hobby that can be turned into a money-making venture. Additionally, take stock of your current possessions. You may discover items like furniture or electronics that are rarely used and can be sold.
Cut Back on Spending
The final tip can be difficult to follow but is essential to managing debt during inflation. Once you’ve got your budget established, it is easier to identify items or services you don’t need. Some items such as food and gasoline can’t be removed—and these items are typically priced higher than normal during inflation. But if you take a closer look, you can reduce your expenses on things that aren’t necessary. Perhaps you can eliminate streaming entertainment subscriptions or reduce your energy/natural gas consumption to heat and cool your house.
By following these tips, you can improve your ability to manage debt during inflation. In addition, these tips can help you avoid accruing future debt and are good practices to maintain, even during times when inflation is low. For more information on how to reduce debt and better position yourself for financial security, please visit the Spending and Budgeting section of our website.