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Two Quick Tips for Money During Inflation

photo of dollar bills in a circle

At American Financial Solutions, two of our primary motives for helping people improve their financial lives is to focus on increasing savings and reducing debt. Inflation brings those two topics to the forefront of everyone’s mind. We hear many people question effectively saving when the value of cash is low and continues to fall. We also see calls for paying down debt with money that is worth less now, than it was when you borrowed the funds. 

What follows are two ideas for protecting yourself while focusing on eliminating debt and maintaining an emergency fund. 

Recommendation: continue to build savings. 
According to the Federal Reserve Bank of Minneapolis, many Americans live with $400 or less in savings available to cover a financial emergency. As inflation rises, and that $400 becomes worth less and less, it leaves us more susceptible to a financial calamity. One in which we may have to borrow funds at a higher interest rate, due to inflation, and one that can set us back in our goals. No matter the time, having money set aside to cover financial difficulties, ranging from a job loss to a flat tire, is critical to our financial health. 

Right now, is a great time to comb through expenses and find places to reduce unnecessary expenses and maybe increase income opportunities. 

Recommendation: evaluate debt repayment strategies 
As we mentioned above, paying down debt during a period of inflation can be good because you are using money that is worth less now than it was when you borrowed the money. The flip side of that, is that everything costs more during inflation – your dollars may be spread thin. Increases in the cost of gas, groceries, clothing, etc. take a bigger bite out of our finances. 

According to the Federal Reserve, the central bank will start increasing interest rates in March 2022 (NPR, 2022). This means the cost to borrow money will also increase. Credit cards are highly susceptible to interest rate increases as many rates are based on what is called the Prime Rate. Any loans – credit cards, adjustable-rate mortgages, auto loans, and home equity loans will likely be impacted by an increase in the Prime Rate. 

Now is the time to review your highest-rate debt balances and find opportunities to maximize options for locking in interest rates and paying the debt down. In the long run, this strategy will save money. 

Build Up Your Finances
Inflation is increasingly becoming a factor in our financial lives. Our hope is that it will be temporary and cause little disruption. You can prepare by focusing on your emergency fund and ensuring that you are controlling debts based on variable interest rates.

American Financial Solutions is here to support help you in evaluating saving and debt repayment options. We support your efforts in improving your financial life and having a plan in the event our economy does falter with inflation. Give us a call today 888-282-5492 or Click on Get Started Now!

Published Mar 15, 2022.