What high inflation means for consumer debt, a guest post by Roundleaf Inc.

High inflation makes it harder for people to pay their monthly bills and get out of debt. Just when we thought things might get back to normal from the Covid 19 pandemic that began three years ago. The covid 19 pandemic was enough to put thousands of people into debt with loss of jobs and incomes, medical bills, or just scraping by to pay monthly bills.

As of March 2021, 80% of Americans owe some type of consumer debt averaging close to $40,000 not including mortgages. (American Debt Statistics)

Americans want to be debt free, but how can they with all these rising prices. According to Ycharts, the U.S. inflation rate is currently at 8.26%. A double increase compared to the 4.16% last year.

What is inflation?

Inflation, in simple terms, is when goods and services increase in price, but the value of our currency is not rising with it. Everyone is affected by high or low inflation in some way. It affects our gas prices, airline fares, and shelters such as homes and hotels.

You might know about the time of the Great Inflation of the 1970s. The Great inflation happened after the great depression (1965-1982). This historical event hurt many people and businesses with increased costs every week leaving people not able to afford goods and services they normally would have. High oil prices and energy costs along with the supply shortages are all similar events that you are seeing today.

Rising Gas Prices

We are experiencing rising gas prices due to the drop in oil production. Gas prices typically increase going into the summer season however, gas prices have increased significantly compared to last summer season. According to U.S. Energy Information Administration, gas prices in the summer of 2021 averaged around $3.00 per gallon, whereas our current prices are averaging around $6.00 per gallon.

Things began to get complicated for us during the Covid 19 pandemic when factories and shipping routes were forced to close down making it harder for us to receive goods. You might have even seen an increase in the value of used cars. This is due to the pandemic making it harder for us to receive chips to build new cars.

Rising Airfares

Every year airfares increase around summertime due to the high demand for traveling. It’s a normal occurrence. Yet, this year it’s higher than normal.

According to forbes.com, Airline tickets have increased by over 50% compared to last year.

There are several reasons for this but the big one is the COVID 19 pandemic. After three years of a global pandemic, airlines are still fighting the challenges that came along with it. With high fuel prices and low employee numbers, airlines are forced to raise their prices to continue to fly.

Rising Mortgage Rates

Another increase you may have seen lately is mortgage rates. According to the Mortgage News Daily, a 30-year fixed mortgage rate is currently at 5.39% as of May 16, 2022. This is a 2.23% increase from last year’s 30-year fixed mortgage rate of 3.16% in May.

The higher the interest rate the harder it becomes for people to want to buy a house. While you may not be able to stop the rising interest rates, there are other factors that you can control to help you get the best interest rate such as your credit score.

Having a high credit score can have an effect on the interest rate you are given by a lender. Check out our article, “How Does Credit Score Affect Interest Rates?” to learn more about credit scores and interest rates.

How inflation affects you

Inflation is currently making it hard for people to catch up with the effects of the pandemic. Americans are juggling mortgage debt, student loan debt, credit card debt, and medical debt. Now with the rising prices of consumer goods, the majority of monthly income is going to everyday necessities.

According to the bureau of labor statistics, the consumer price index increased a total of 8.3% over the past 12 months for all consumer goods. This includes shelter, food, airfares, and energy such as vehicles.

What is the Consumer Price Index?

The consumer price index (CPI) is how they track the cost of living (common goods and services) over time. The consumer price index is then used to determine the official inflation rate. It is important to keep up with the CPI to understand inflation and deflation.

The CPI is an estimated calculation of the total sample survey provided by households and individuals of what they actually bought. This is done with weekly and quarterly interviews to get the most accurate numbers. Price changes for every good and service affect everyone.

Getting out of debt during these trying times

Getting out of debt is typically a very lengthy and complicated process on its own. Now with rising inflation rates and incomes staying the same, getting out of debt is seen as almost impossible. Whether you are wanting to make a big purchase, looking to boost your credit score, or just want to be debt free, there are always resources available to you.


Available resources

Low-Income Assistance

Aside from asking your friends and family for assistance, there are many low-income assistance programs available. There are many resources such as food assistance, medical care, or housing and utility assistance. You can check out the details for the different assistance programs you might qualify for on edd.ca.gov.

Credit Counseling Services

Credit counseling services like Roundleaf can help you understand your situation and options. They offer debt management and budgeting assistance to help you stay on top of your finances to reach your financial goals!

Debt Settlement Services

Consider debt settlement services to help you reduce and eliminate your debt faster than just paying the minimum monthly payments. Debt settlement helps you reduce your credit card balance to a lesser amount to be able to pay it off faster. If you are interested in learning more about how debt settlement works check out “What is a debt settlement program?”.