Inflation forces 26% of Americans to stop paying their debts. Here’s how to stay on track

0

Image source: Getty Images

It’s not a good way to land.


Key points

  • Many people make financial changes as a result of inflation.
  • It’s important to stick to your debt repayment plan, especially with a possible recession looming.
  • Consider cutting your leisure expenses or taking a side gig to deal with debt repayment.

Given the way inflation has wreaked havoc on consumers since mid-2021, it’s easy to see why some people may have gone into debt over the past year. Or, you might run into debt before inflation set in and still have a loan or credit card balance.

The sooner you pay off your debt, the less you are likely to spend on interest. Plus, paying off credit card debt in particular could do wonders for your credit score.

But in a recent Morgan Stanley report, 26% of Americans say they are cutting back on their debt repayments because of inflation. And it’s a decision you might regret.

New: A card with a huge bonus of $300 hits the market

More: These introductory 0% APR credit cards made our top list

The problem with having to go into debt right now

For months, financial experts have been warning that an economic recession could be imminent. And in light of that, it pays to get rid of your debt as soon as possible.

In the event of a recession, the risk of losing a job tends to increase. And the last thing you want is a series of expensive debt payments hanging over your head at a time when your paycheck has taken a hit or disappeared entirely.

Moreover, even if a recession does not hit, the Federal Reserve has aggressively raised interest rates in an effort to slow the pace of inflation. If you owe money on something like a credit card or home equity line of credit (HELOC), you should be aware that the interest rate on your debt is likely variable, which means it can change over time based on market conditions. And at a time like this, carrying over a credit card or HELOC balance means taking the risk of having to pay more.

How to stay on track with your debt repayment efforts

It’s easy to see why you may have reduced your debt repayments at a time when the cost of living is so high. But if so, now is a good time to refocus.

First, make a budget that takes into account your essential living expenses and see how much money you have left after things like your rent, utility bills, and groceries are paid. From there, consider cutting back on non-essential expenses until you’ve made good progress with your debt.

That doesn’t mean you can’t or shouldn’t spend a dime on your entertainment. But he would have It might be a good idea to cancel your $100 monthly cable service and replace it with a streaming service that costs $14.99.

At the same time, you might want to consider getting a second job while the economy is still strong. A side gig might not be easy to get in six months or a year, but if you’re able to hold one in the short term, you can use your earnings to pay down your debt until you’re done. have reduced your balance or, better yet, eliminate it altogether.

All in all, right now is a pretty dangerous time to hold on to debt. If you have reduced your repayments due to inflation, do what you can to revive. You will be grateful if the economy deteriorates or the interest rate on your debt starts to skyrocket in the coming months.

Alert: The highest cash back card we’ve seen now has 0% introductory APR until almost 2024

If you use the wrong credit or debit card, it could cost you dearly. Our expert loves this top pick, which features an introductory APR of 0% until nearly 2024, an insane payout rate of up to 5%, and all with no annual fee.

In fact, this map is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

Share.

Comments are closed.