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Managing Debt in a High Inflation Environment

Did you know that year-on-year inflation in February 2023 was 10.4%? The last time the Consumer Purchasing Index, or CPI, came close to this figure was in 1990. As a financial wellness platform, we’re concerned by knock-on effects that employees around the world will feel from this macroeconomic environment.


The extraordinary levels of expansionary monetary policy we experienced during the Pandemic are truly unusual in the context of the last 30 years, and the resulting inflation is currently being combatted by the Bank of England through interest rate hikes.


Unfortunately, inflation has 2 sides, supply and demand, so rate hikes won’t solve all our inflation problems. It’s critical therefore to be proactive and understand how you and your household might be affected as a debt holder.


According to recent statistics from the ONS, the total unsecured debt per UK adult in January 2023 was £3,941, with average credit card debt per household at £2,277. It's not surprising that debt is becoming an increasingly concerning issue for many households.


Furthermore, the change in outstanding credit card balances in the year to January 2023 was 9.01%, which means more people are losing control of their finances and struggling to manage their debt effectively.


Although inflation can reduce the value of debt, this only happens if your wages keep pace with inflation, which statistically has not been experienced by all workers uniformly. This makes proper financial planning absolutely critical.


Here are a few simple steps you can implement now to manage your debt in a high inflation environment, and bring a higher quality of financial wellness to your life:

  1. Make a budget and stick to it. This will help you prioritise your spending and reduce unnecessary expenses. There are several quick and easy budget calculators available online, like Money Helper and NerdWallet

  2. Consider consolidating your debt with a low-interest personal loan or balance transfer credit card. This can help you save money on interest and simplify your payments

  3. Don't be afraid to seek professional help. There are debt management organisations and financial wellness platforms that can provide advice and support to help you get back on track

Remember, managing your debt is crucial to achieving financial stability and reducing stress - now more than ever.


Sources: The Money Charity, 2023; Office of National Statistics




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