How to Manage Credit Card Debt During High Inflation

Managing credit card debt can be challenging even in stable economic times, but when inflation rises, it becomes even more important to navigate your finances carefully. High inflation impacts everything from the cost of goods and services to interest rates on debt. Read on for guidance on how to manage your credit cards during high inflation.

How inflation can impact credit card debt

Inflation reduces the purchasing power of money, meaning you need more money to buy the same goods and services. This increase in prices can lead to higher everyday expenses, making it more tempting to rely on credit cards to cover the gap between income and spending. Yet carrying a balance on your credit card during inflationary times can be costly.

Credit card interest rates can rise in response to inflation. This means that the cost of carrying a balance on your credit cards can climb, making it harder to pay off your debt and potentially leading to a cycle of increasing balances and rising interest charges.

Tips for managing credit card debt and inflation

  • Create a budget: Start by analyzing your current spending habits and creating a budget including a list of income and monthly expenses. Identify where you can cut back, especially on expenses that are not essential such as eating out, new clothing, etc. You can dedicate every dollar you save to paying down your credit card debt.
  • Prioritize high-interest debt: Start by paying off credit cards with the highest interest rates first. This strategy helps reduce the amount of interest you pay over time.
  • Consider balance transfers: If you have good credit, you might qualify for a balance transfer offer, even as low as 0% for a limited time. This could allow you to transfer higher balances and might provide temporary relief from high interest rates, helping you pay down your balance faster.

Maximizing credit card benefits in inflationary times

While managing debt is crucial, it can be helpful to maximize the benefits that credit cards offer, too.

  • Take advantage of rewards programs: Use credit cards that offer cash back, points or travel rewards. By strategically using these cards for your regular purchases, you can earn rewards that help offset rising costs. Just make sure to pay off the balance in full each month to avoid interest charges and mounting balances.
  • Use price protection: Some credit cards offer price protection, which refunds the difference if you buy an item and then find it at a lower price within a certain period. This feature can help you save money on larger purchases.
  • Review the perks: Many credit cards come with additional benefits, such as extended warranties and travel insurance.

Paying off credit card debt and preparing for the future

As with any challenge in life, having a plan and working that plan is not only effective but also empowering. Here are some tips for setting yourself up for success when it comes to paying off your debt and maintaining your financial health.

  • Create a debt repayment plan: Make a clear plan with action steps and milestones for paying off your credit card debt. If you have high-interest debt, you can pay extra on that until it’s gone while paying the minimum balance on the others. Another option is the snowball method, which means making extra or larger payments on the smallest credit card balance while paying the minimum on the others, then when the smallest balance is paid off, move on to the next highest debt amount. Either way, having a plan will keep you motivated and focused.
  • Increase your income: Look for ways to boost your income, such as taking on a part-time job, freelancing or selling unused items. You can put any additional income toward paying off your credit card debt faster.
  • Build an emergency fund: Establish an emergency fund to prevent you from relying on credit cards in the future. Aim to save three to six months’ worth of living expenses in a separate, easily accessible savings account. This fund will provide a financial cushion during unexpected events, reducing the need to incur additional debt.
  • Research credit card options that fit your needs: It’s helpful in the long run to have credit cards that best fit your needs, such as cards with lower rates and perks that make sense for you. Since having too many credit cards can hurt your credit score, be sure you pay off credit cards with higher interest rates and close those accounts before obtaining an additional credit card with lower rates and better perks.
  • Monitor your credit report: Regularly check your credit to make sure there are no errors and that your score remains healthy. You can get a free credit report each year from the three big credit reporting agencies: Equifax, Experian and TransUnion. A good credit score can help you get lower interest rates on credit cards and loans. If you live in Colorado, you may be entitled to two free credit reports each year from the three big credit reporting agencies; one report based on federal laws and one report based on Colorado laws.

Learn more

Check out options through Bellco for a credit card that matches your goals and lifestyle. If you’re looking for assistance with debt relief, you’re not alone. Bellco offers a variety of additional borrowing options that can help you finance necessary costs or rebuild your credit history.