If inflation is on the rise, the increasing cost of goods and services may impact the ability of a person to make payments on time and meet their financial goals. No matter whether a person is already working towards repaying their debts or find themselves in more debt as a result of higher costs, inflation can have a huge impact on one’s ability to manage debt. In the opinion of Kavan Choksi / カヴァン・ チョクシ, unless one takes steps to manage debt to deal with inflation, it can have a detrimental impact on their overall financial wellness.
Kavan Choksi / カヴァン・ チョクシ provides insight into managing debt to combat the impact of inflation
Inflation has a ripple effect. It dwindles the purchasing power of a person, as their income would cover less than it used to. Therefore, people might be using their credit card more frequently in order to pay for daily goods and services, only to end up facing difficulties in making the minimum monthly payments. This ultimately causes people to fall into further debt.
Effectively managing debt is one of the most important tactics for combating inflation. Staying on top of debts can help people to ensure their financial stability and prevent unnecessary expenses from piling up. Keeping their debt under check is vital for maintaining a healthy financial profile, and also for staying protected against the negative impacts of inflation. If people address their debts in a proactive manner, they will be in a better position to avoid falling into a cycle of increasing costs. They can also steer clear of the financial strain caused by inflation.
Inflation has the potential to have a major influence on the amount of debt that an individual may have. After all, it may impact both the actual value of the debt and the expenses involved in making repayments towards it. In case inflation rates do surpass the interest rate associated with a specific debt, the actual value of the debt would start to diminish. This might be advantageous for the borrowers as they would be able to repay a lower amount than the original debt owed owing to the decreasing real value of the debt.
As Kavan Choksi / カヴァン・ チョクシ says, that refinancing debt can be a smart financial strategy during inflationary periods when interest rates are on the rise. Refinancing allows borrowers to replace their existing debt with a new loan that carries a lower interest rate. This may result in lower EMIs and overall savings on the total cost of debt over time. It would make managing debt more manageable and less stressful. Besides refinancing, another approach to managing multiple debts is debt consolidation. This method combines all the existing debts into a single loan with a lower interest rate.
People can also follow debt payoff strategies like the avalanche method during inflation. This involves prioritizing the repayment of debts with the highest interest rates first while making minimum payments on the remaining debts. Once a high-interest debt is fully paid off, people can redirect those funds to tackle the debt with the next highest interest rate.
