Inflation and Debt: Strategies to Protect Your Financial Health

Table of Contents

1. What is Inflation and How Does It Affect You?

2. How Does Inflation Affect Your Debt?

3. What Debts Should I Focus On During High Inflation?
4. What Are Some Practical Tips for Handling High Inflation?
5. How Can Addition Financial Support Their Members During High Inflation?

According to the US Inflation Calculator, as of February 2025, the current US inflation rate is 2.8%.

The US government tries to keep the national inflation rate at around 2%, so that number is pretty good, but do you know what it means for you? Inflation can be a complicated thing, and while it is easy to break it down to just “prices go up,” it really means much more than that. 

That’s where we come in. This article is designed to help you learn more about inflation, what it means for you, and how you can improve your financial well being even if you have debts during a time of high inflation. 

We’ve come prepared with explanations of what different terms mean and practical tips for getting through higher inflation and coming out the other side even better than when inflation rates went up.

What is Inflation and How Does It Affect You?

You may have heard the term “inflation” thrown around, usually coupled with “price hikes” and “rising interest rates.” All of that can seem overwhelming; that’s why we’re here to break it down for you. Inflation is the normal increase in the prices of goods and services as jobs and wages increase, and it happens gradually over time in any economy.

We mentioned that the government likes to keep the national inflation rate at 2%, so you may wonder why it’s not aiming for a 0% increase. That’s because an economy needs a little bit of inflation to keep growing. Otherwise, the economy will stagnate or, worse, deflate. That is to say, as wages and jobs increase, the prices of goods and services increase accordingly.

Now, you may be wondering what all that might mean for you. Well, unfortunately, that does mean that you may be looking to pay a little bit more for your everyday expenses, and it may feel like your dollar doesn’t stretch as far as it used to. This can cause concern if you already have debts you have to pay on top of rising prices, so what does this mean for your financial future?

If you’re looking for a more in-depth explanation of inflation, you can check out Addition Financial’s free inflation infographic.

How Does Inflation Affect Your Debt?

Most people have a little bit of debt to their name – and that’s totally normal! It could be anything from credit cards to an auto loan to a mortgage, and you’d be hard-pressed to find someone without any debt at all. What you may need to be concerned about when it comes to inflation is the interest rate on your debt repayment.

Interest is an extra fee charged on top of your loan repayment by a lender to ensure they make a profit on the life of the loan. It’s usually expressed as a percentage and comes in a few different variations.

An effect on your debt when it comes to inflation is that interest rates may rise, but depending on the type of debt you have, this can actually be good for you. 

For example, credit cards often have a variable interest rate, which means they can raise or lower depending on national interest rates. If national rates go up, then your variable interest rate will likely rise, too, meaning a higher monthly payment.

On the other hand, a loan with a fixed interest rate remains the same for the life of the loan. If your mortgage is a fixed rate, and the national interest rates become higher than your fixed rate, you’ll actually be paying less over the life of your loan.

What Debts Should I Focus On During High Inflation?

If lessening your debt, or getting out of debt altogether are on your mind, inflation doesn’t have to put a damper on your plans. The first thing you should do is look at the types of debt you have. You likely have a credit card or two, maybe an auto loan, student loans, a mortgage – or any combination of those.

Make sure you know what interest rates are associated with each kind of debt. You’ll likely want to tackle your debts with variable interest rates first, like your credit cards. These interest rates are likely to rise as national rates rise, so if lowering debt is on your mind you’ll want to start there. You can calculate how long it will take you to pay off your credit card debt by using a convenient debt payoff calculator.

Fixed interest rate loans may not need as much aggressive action, as even if interest rates rise, your interest rate will stay the same. As long as you’re making your payments on time, then they may not need any extra attention until your variable rate loans are taken care of.

How Can You Manage Your Personal Debts During Inflation?

Managing your debts is an important part of your financial well-being, but it can seem like an extra challenge when you add in inflation and rising costs of everyday products. One of the best things you can do is simply be aware of your own spending habits.

It can be very tempting to use your credit card for everything or even open multiple credit cards when you need a little extra. If you suspect that inflation is having an impact on your finances, then take a step back and look at your spending. How often do you use your credit card? Which credit cards have the highest interest rate?

Your awareness is the biggest weapon in your arsenal against inflation. Addition Financial offers plenty of resources about how you can manage your personal debt, and if you’d like to learn more, we welcome you to check them out.

What Are Some Practical Tips for Handling High Inflation?

There is no one-size-fits-all approach to handling high inflation, as people’s financial situations and preferences are as unique as they are. But there are plenty of good places to start.

• Budget Budget Budget: The foundation of anyone’s financial health is a solid budget. And remember, much like weight loss, it’s about finding a plan you can stick to rather than trying to lose as much as you can all at once.
• Get on the Phone: Did you know plenty of resources that you use every day may have better rates? All you have to do is get on the phone and ask! And, if your current provider doesn’t offer a better rate, maybe a competitor does.
• Break Out the Magnifying Glass: Subscriptions can be sneaky; you may have signed up for a free trial and forgotten to cancel it. Go through your bank statement with a fine-toothed comb to discover subscriptions you no longer need.
• Bulk Up: Do you have extra space in your pantry or garage? Consider buying non-perishable items in bulk. Often, the price per unit is less when you do, so as long as you have the space, give it a shot.

Not every strategy will work for everyone, and that’s perfectly fine. What’s important is that you find the strategy that works best for you and your family. No one knows your financial situation better than you do, so use your best judgment to make a plan you know you can stick to.

How Can Addition Financial Support Their Members During High Inflation?

Addition Financial is committed to taking care of its members in all financial situations. A fantastic way they support their members is by helping their hard-working money work for them. Addition Financial offers both checking and savings accounts that pay dividends on balances.

For example, Addition Financial’s Benefits Checking account earns dividends on accounts with balances on or above $1,000, as well as offers rate discounts on certain kinds of loans. And if you have business out of the country, then you can get a rebate for your foreign ATM fees.

If you already have a checking account with Addition Financial and are looking to bolster your savings to build an emergency fund during inflation, consider the Savings Plus account. You can earn up to a 4.00% APY savings rate on balances up to and including $5,000 – that’s how you can make interest work for you!

Learn More About How Addition Financial Can Help You During Times of High Inflation

Managing your debt when inflation is beginning to increase can seem overwhelming, but it doesn’t have to be. Get together with your family and go over your budget to think of ways you can reduce spending and start putting a dent in your personal debt. Remember, you’re not alone in this, and there are always resources available to help you out when it comes to your financial plan.

If you’re looking for more tips to improve your financial wellness, Addition Financial has plenty of personal finance resources on debt management, building a budget, and many other topics. Check the website to find financial education and guidance on making financial decisions to make the most of your money.