
How to Manage Credit Card Debt During Periods of High Inflation
With rising inflation rates in the United States, Americans increasingly rely on credit cards to cover their expenses. However, one of the growing effects of inflation is a significant increase in credit card balances, which creates the risk of consumer financial stress due to both inflation and mounting debt. Here are several tips for managing your credit cards during this inflationary period.
- Debt prioritization and focusing on paying off debts as quickly as possible.
- Pay off credit card balances in full each month, prioritizing debt repayment using the snowball or avalanche methods
- Consider a balance transfer to a lower interest rate.
- Creating and following a budget, avoiding new debt, and negotiating with your lender for a lower interest rate.
LESSON CONTENTS
Managing credit card debt during inflation
As price growth continues to outpace nominal income growth, many Americans lean on credit cards to cover their monthly budgets. According to the New York Fed, credit card balances increased by $61 billion in the fourth quarter of 2022. Consumers carry higher credit balances due to rising annual percentage rates (APRs) and higher prices. While in the short-term, credit cards help cover daily expenses and maintain standards of living, they pose the risk of driving you into a debt spiral in the long run.
You might be facing the challenge of higher credit balances as the cost of goods and services increases at a faster rate than your income. Sometimes it is unavoidable to use credit cards but overusing them can result in a lower credit score and excessive interest charges.
Pay the full monthly bill on time
In this inflationary environment, one effective strategy to avoid falling into a double whammy of inflation and credit card debt is to pay at least the minimum monthly bill on time to avoid penalties and fees. By paying on time, you avoid accruing interest on the remaining balance, which can further increase your debt. Settling your balance in full will reduce your costs and help you maintain a good credit score. Remember, your payment history is the most critical factor for your credit score, accounting for 35% of the calculation. In addition, timely payments show lenders that you are a responsible borrower, which can lead to better credit terms and lower interest rates in the long run.
Prioritize debt repayment
Prioritizing debt repayment is crucial during periods of high inflation. There are two common strategies that you can consider for paying off your credit card debt:
The snowball method:
With this strategy, you first pay off your smallest debt while making minimum payments on your other debts. Once you clear the smallest debt, you move on to the next smallest debt, and so on. This strategy can help build momentum and motivation as you see your debts getting paid off one by one.
The avalanche method:
This approach involves prioritizing your debts based on interest rates. You make minimum payments on all your debts while paying off the debt with the highest interest rate first. Once that debt is paid off, you start paying the debt with the next highest interest rate, and so on. This method saves you money on interest charges over time.
Increasing your payments is always a good idea regardless of which strategy you choose. Even a slight increase can significantly impact your debt over time.
Consider a balance transfer
This is similar to debt consolidation but involves transferring your existing credit card debt to a new credit card with a lower interest rate. Many credit union credit cards offer a 0% introductory APR on balance transfers for a limited time, usually 6 to 21 months. During the introductory 0% APR period, you can aggressively pay off your debt without incurring additional interest. Keep in mind that the APR reverts to the regular rate after the promotional period expires.
Usually, balance transfer fees apply, and you'll need to pay off the balance before the introductory rate expires to avoid accruing interest charges. Always assess whether the transfer fee is lower than what you would otherwise pay in interest.
Create a budget
Tracking your expenses is always essential for managing personal finances. A budget plan becomes more critical in high inflation, pinpointing areas where you can save money. Start by tracking your expenses to identify where your money is going. For example, review your subscriptions for unnecessary or overlapping items. Then, prioritize your spending based on your needs versus wants. Cut down on discretionary spending and allocate those funds to paying off your credit card.
Negotiate with lenders for a lower interest rate
If you're having difficulty making your credit card payments during periods of high inflation, consider negotiating a lower interest rate or a more manageable payment plan. Be honest about your financial situation and explain that you're struggling due to the high inflation. Many creditors are willing to help find a solution that works for both parties.
By following these detailed money management tips and best practices on dealing with credit card debt during inflation, you can effectively manage debt and minimize the impact of inflation on your finances. If you're struggling to manage your credit card debt, you can also seek professional help from a credit counselor or financial advisor. They can help you create a personalized plan to pay off your debt and reach your financial goals.
*PLEASE NOTE: This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.
Related Resources
View AllSeven Credit Score Pitfalls to Avoid
When lenders size you up for a mortgage, credit card, or small-business line, they aren’t reading your diary—they’re scanning your credit score. According to Experian, the average U.S. FICO Score was 715 for 2024 (Horymski, 2025), placing much of the country in the “good” range. However, that average hides lower scores for millions of consumers who stumble into common credit score pitfalls.
Ways to Build Credit
To help you get the most out of your credit card, we wanted to share some ways to establish and improve your credit. Building a solid credit history is essential for financial health, as it influences loan approvals, interest rates and even employment opportunities. By monitoring your credit regularly and maintaining good credit habits, you can build and maintain a strong credit history, opening doors to better financial opportunities in the future.
Credit Card vs Debit Card: What's the difference
Nowadays, debit and credit cards are used as the primary way to pay for purchases. They are designed to be easy and convenient to use on the go, so you don’t have to carry around large quantities of cash. You can also freeze the card if it is lost or stolen to limit your exposure to fraud. But credit and debit cards work in different ways. A debit card gives you a direct line to the money already in your checking account, while a credit card means buying something on credit. You will then need to pay off the balance on the card plus any interest that has accrued. Credit cards can enhance your credit score, while debit cards do not impact credit history. Additionally, credit cards frequently offer rewards and benefits, such as cash back or points. Learn how to find the right type of card for your situation and ensure you use these two cards responsibly.
What Can You Do with an Excellent Credit Score?
If you’ve ever wondered what you can do with good credit, the answer is quite a lot. One, a high credit score opens doors to better interest rates. Two, it grants access to premium credit cards, exclusive loyalty programs, and other perks. In essence, a good or excellent credit score is a financial launchpad. You can leverage it to turn your financial aspirations into realities—whether you want to buy a home, finance a new car at a low interest rate, or qualify for attractive travel rewards cards that make your next vacation more affordable.
So, what can you do with an excellent credit score specifically? You could negotiate more favorable terms on major loans, tap into 0% introductory APR credit union credit card offers, and qualify for high-end financial products. It could mean fewer hassles when applying for rentals or landing that dream apartment. A top tier score also helps you keep more money in your pocket over the long run. With lower interest charges and fewer fees, you can channel your savings into investments and retirement accounts or simply enjoy more of your hard-earned money.
How to Use a Credit Card Responsibly
Credit cards offer convenience, security, and even rewards. However, using a credit card without proper planning can lead to high-interest debt and land you in financial hardship. Therefore, it’s important to understand how to use a credit card responsibly. Setting a clear budget, paying off balances in full, monitoring credit scores, and avoiding common pitfalls are essential credit card management techniques. With discipline, you can enjoy the benefits of credit while maintaining control over your finances.
What is a HELOC and What Can You Use it For?
Imagine unlocking a treasure chest hidden within your home—this is essentially what a Home Equity Line of Credit (HELOC) allows you to do. So, what is a HELOC? A HELOC loan lets you tap into the built-up equity of your home, offering a flexible line of credit that you can use for a myriad of purposes. You can use it for a kitchen makeover, consolidating high-interest debt, funding your child's education or as a financial safety net to cover unforeseen costs. Simply put, it transforms your home’s equity into accessible cash whenever needed.
What is a Good Credit Score?
In personal finance, one of the most pivotal metrics that reflects your financial health is your credit score. This three-digit number is the culmination of your credit actions and behaviors. It is a shorthand for lenders to gauge your trustworthiness as a borrower. Are you wondering how to build credit? First, understand the nuances of credit scores, including what a good credit score is and how it can affect your financial opportunities. This guide explains the key variables and details to navigate the credit market successfully.
The Good and Bad of Store Credit Cards
If you’ve ever been to a department store or chain retailer, the salesperson probably asked you if you wanted to open a store credit card. A store credit card is like a normal credit card except that, in most cases, you can only use it at participating stores and businesses. Some of the biggest chain outlets and retailers, such as Target, Home Depot, Walmart, Macy’s and other clothing retailers offer this option.
But how do these cards work? And can they actually help you save money? Let’s find out.
Is Your HELOC Draw Period Coming to an End? Here’s What to Know
If you have a home equity line of credit (HELOC), you can withdraw money from your open HELOC line during what’s known as the draw period. HELOCs work like credit cards by providing you with a revolving line of credit, letting you borrow what you need, when you need it. Once you get approved for a HELOC loan, you can use this money to pay for home repairs and other major life expenses as needed.
However, once the draw period comes to an end, you can no longer access these funds. You will also need to start repaying the money borrowed plus interest. It's important to know how much of your HELOC has been utilized, so you don't run out of money in the middle of your project or life event. Learn more about the HELOC draw period and what this means for your finances.
Tips for Managing Student Loan Payments
Beginning your career after college is meant to bring optimism as you start a new phase in your life. Unfortunately, many Americans are weighed down by student debts. With different repayment options, interest rates, and loan terms, it's easy to feel overwhelmed. However, with some strategies, you can manage your student loan debt and avoid default.
Since debt management is critical for long-term financial health, we'll provide student loan management tips to help you stay on track and achieve financial stability.
What is Credit History?
Anyone that has taken on debt has what is known as a credit history. Credit bureaus keep records of your credit history to determine whether you can pay off your debt on time. Lenders will then use this information when deciding whether to issue you a loan.
Your credit history will impact your chances of getting approved for a loan as well as your credit limit. If you have a bad credit rating, you may also have to pay a higher interest rate, increasing debt. If you are buying a home for the first time or making a major purchase, how credit ratings work should be important to you. If you are thinking of applying for a loan, use this guide to improve your credit history and save money.
How to Manage Credit Card Debt During Periods of High Inflation
With rising inflation rates in the United States, Americans increasingly rely on credit cards to cover their expenses. However, one of the growing effects of inflation is a significant increase in credit card balances, which creates the risk of consumer financial stress due to both inflation and mounting debt. Here are several tips for managing your credit cards during this inflationary period.