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How to manage debt during inflation

Carlson School of Management Assistant Professor Jacelly Cespedes is an expert in corporate and household finance. She shares several tips on how to approach expenses, debt and investments in response to inflation.

Debt management plan with calculator and cash.
Debt management plan with calculator and cash.
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The Federal Reserve is expected to continue raising interest rates amid the highest inflation in 40 years.

That means many households are reassessing their finances.

Carlson School of Management Assistant Professor Jacelly Cespedes is an expert in corporate and household finance. She shares several tips on how to approach expenses, debt and investments in response to inflation:

The expected rate hikes by the Federal Reserve in response to the decades-high inflation will change the financial landscape for households.

Those who have not faced higher interest rates previously may not know what to expect.

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Here are some tips:

  • Avoid accumulating credit card debt. As the Federal Reserve increases interest rates, any debt without a fixed interest rate is going to increase. Since credit cards have a variable interest rate, rolling over your debt each month will get very expensive.
  • Act now on car loans. If you are in the market for a car, you may want to act sooner rather than later. Interest rates are still fairly low for car loans but the rates will only increase due to the Fed’s new monetary policy.
  • Negotiate expenses. You may be able to lower the monthly payments for some bills like insurance, cable and phone. Companies often expect customers to be inattentive to prices. Reach out to your providers and shop around to see if you might be able to get a better deal.
  • Review your investment portfolio. Some of your asset allocations in your retirement or personal portfolio may be impacted by inflation. You may need to rebalance and diversify your investments. Consider investing in treasury inflation-protected securities (TIPS), which can rise in value during inflationary periods.”

Jacelly Cespedes is an assistant professor in the finance department at the Carlson School of Management. Her research expertise includes corporate finance, household finance, financial intermediation and FinTech.

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