As many people might have heard on the news recently, the United States, and indeed much of the globe, is experiencing the worst inflation in decades. For those who may not know, inflation is when prices of goods and services increase. COVID-19 is making it more difficult to ship goods, and the scarcity of goods along with pressures in the job market are increasing prices. Everyone needs to contend with inflation since it seems like prices will continue to rise and inflation will be higher than usual for the foreseeable future. Dealing with inflation as a student debt borrower may be easier if you follow some strategies.
Slow Student Loan Payments
This website is dedicated to the proposition that paying off student loans early is a solid financial goal since this minimizes the amount of interest you will pay on the debt. However, with inflation, it might not always make sense to pay off student loans so quickly. This is because if money is less valuable, but the interest rate on your debt remains constant, it might make more sense to invest money or purchase items that might increase in price than to pay off student debt quickly.
This is not to say that you should not make any student loans payments. Student debt borrowers should pay all of their student debt on time since there can be serious consequences if student loans are not paid. Nevertheless, inflation may change the well-established logic that it makes sense to pay off student debt early if this is at all possible.
Don’t Keep Too Much Cash on Hand
Another important thing to keep in mind when dealing with inflation as a student loan borrower is that it does not make sense to keep too much cash in a bank account without earning interest. If inflation is six percent, any money in your bank account will be six percent less valuable a year from now than it is today. The normal inflation rate is half or less than this amount, so it doesn’t hurt to keep money in an emergency fund or similar account. However, the current situation should have student debt borrowers thinking about ways to invest money.
Student debt borrowers may wish to use an application like Acorns to invest their money. This was discussed in a prior article, and essentially, this app allows users to invest their money in various positions based on their risk so that cash is working for you and earning interest. If you sign up for Acorns with the link above, I may earn an incentive I can use to keep the lights on at Student Debt Diaries. Of course, it makes sense to have some money in the bank to pay expenses, but while inflation is high, try to limit the amount of cash you have as much as possible.
Ask for a Raise
This website recently published an article about how student debt borrowers should ask for a raise to have more money to pay down student loans. Raises are even more important when there is inflation since the purchasing power of your salary may be reduced because of inflation. People generally deserve at least salary raises to keep up with the cost of inflation so that the quality of their lives do not go down because of inflation, and if you are excelling at your job, you should be able to argue for a bigger raise than merely keeping up with inflation.
Many people have routine conversations about salaries and bonuses. Along with talking about your job performance, it is fine to discuss inflation and how this impacts the purchasing power of the money that you have. Bosses may understand that we are experiencing a higher-than-normal inflation rate and take this into consideration when making decisions about raises and bonuses.
Plan Your Purchases
Another important thing to contend with when dealing with inflation is to plan your purchases more than usual. In normal circumstances, it is easy enough to go to the store or order items online when things are needed. However, things are not that easy in the present environment. The supply-chain shortage is causing disruptions in how many goods are available for purchase and an item that is available now might not be available for purchase a few months from now.
Moreover, the price for an item might also be different. Depending on scarcity caused by supply-chain shortages, items might be in high demand. Accordingly, merchants can charge more money for a given item, and many of us may have already confronted this phenomenon. Moreover, the increase in the inflation rate can impact the price for items even if there are no supply-chain shortages for a given item. Fortunately, it is relatively easy to know when you will need to purchase items for holidays, birthdays, anniversaries, and other occasions. As a result, individuals should purchase items as soon as possible after they know they will need to purchase things so they have the best chance possible at buying things at lowest price.
We are living in unprecedent times, and the higher-than-average inflation rate is just another issue that we all need to face as we navigate the COVID-19 pandemic. However, like with other aspects of the pandemic, with a little planning and foresight, dealing with inflation can be easier in a variety of circumstances.