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Avoid Inflation From Making Your Debt Worse

Earlier this year, reported that Americans carrying credit card debt month-to-month had increased from 39% last year to 46% this year.

Why Has Credit Card Debt Increased?

With the cost of inflation hovering around 5% (down from an all-time high of 8% in 2022), many people are feeling it in their wallets and on their credit cards. If you’re finding that your discretionary income has dwindled and the amount you’re putting on your credit cards has also gone up, higher interest rates can make the impact that much harder. But through a debt management program, you can alleviate the burden that inflation has put on your credit card debt and potentially your credit card score.

How does a debt management program (DMP) work?

When you enroll in a DMP, you’ll work with a credit counselor who will help you create a budget to manage your household expenses. They will then talk to your lenders to consolidate your unsecured debt into one monthly payment that’s affordable to your specific situation, as well as reduce your interest rate—usually between 6%–10%—all to be paid off in three to five years.

Inflation and interest rates

Inflation measures the increase in the cost of goods and services, like groceries, energy, healthcare, housing, cars, and more. When these costs go up, the power of the dollar goes down. To bring inflation down, the Federal Reserve increases interest rates. While inflation may have forced you to use your credit cards more because you found yourself with less discretionary income, rising interest rates hitting your credit card can push debt even higher. Currently, the national average credit card interest rate is more than 20%.

This means that were you to open a new card or default on a payment, you could end up with higher interest rates on top of more debt—making repayment that much harder.

How can a debt management program help you avoid inflation?

By reducing your payments and interest rates, a DMP can help you pay down debt incurred from the impact of inflation on your overall cost of living, so that your credit score doesn’t also get hit—and you can recover your financial well-being.

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