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Throughout the country, consumers are facing higher prices on everything from gas and groceries to repair bills and more. As people struggle to cope with rising costs, many are turning to credit cards to make ends meet.
Without the right plan, running up your credit card balances could have serious financial consequences in the future. But if you are able to avoid potential pitfalls, you might be able to use credit cards to fight inflation and the damage it’s causing to your budget.
Find The Best Credit Cards For 2022
No single credit card is the best option for every family, every purchase or every budget. We’ve picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.
Prices on the Rise: Should You Be Worried?
In the US, overall prices have gone up nearly 9% in the past 12 months. The US Department of Labor reports that the Consumer Price Index (aka a measure of how much consumers pay for general goods and services) had its biggest increase since 1981 — over four decades ago.
Although costs have risen across the board, inflation has hit Americans harder in certain areas including:
- Vehicles (New and Used)
- Airline fares
- Medical costs
- Energy costs (gas, electricity, and natural gas)
Many cost increases — like food, shelter and energy — pertain to essential expenses that households have to manage on a daily or monthly basis. So it’s understandable that many consumers feel anxious about how to manage their finances in the current economic climate.
How To Fight Inflation With Your Credit Card
No matter your financial situation, inflation can affect your budget. Higher earners may have to slow down their savings or debt elimination goals to adapt to price increases. And households with lower incomes may struggle to cover the basic necessities for themselves and their families.
Because inflation has the potential to disrupt your financial goals, it’s important to find ways to combat those rising costs. You might not think of credit cards as having the potential to fight inflation. Yet when you’re strategic about how you use credit cards, those little pieces of plastic could offer significant financial benefits.
One way a credit card could help offset the impacts of inflation happens when you take advantage of introductory offers. If you have good credit or excellent credit (ie, a FICO® Score of 670 or higher), you might be able to qualify for 0% APR credit card offers.
- 0% APR on New Purchases: Certain credit cards may offer a 0% introductory APR period for new credit card holders. Such offers give you the ability to carry a balance on your credit card on a short-term basis (often 12 to 18 months) without paying interest charges.
If you need to break the cost of a large unexpected expense down over time, a 0% credit card offer might be worth considering. Others might try this approach to cover expenses until a large influx of cash occurs (like a bonus or tax return) or they can line up a side gig to earn extra income.
Note that in either scenario, it’s critical to pay off your credit card balance before the introductory period ends. Otherwise, pricey credit card interest fees can kick in, and the average credit card APR is high compared with other financing options.
Revolving an outstanding credit card balance from month to month can also increase your credit utilization rate. And when your credit card utilization rate goes up, it could be bad for your credit score.
- 0% APR on Balance Transfers: If you’re struggling with the financial impacts of inflation, paying down debt might not be at the top of your priority list. But if you can find a way to lower your credit card balances, you may be able to free up some cash to use in better ways. Eliminating or lowering debt payments could provide some much-needed financial breathing room.
A 0% APR balance transfer offer is one possible solution that could speed up your debt payoff journey. If you can use a balance transfer to lower the APR you’re paying on a temporary basis, you may be able to save money and get out of debt faster. Just remember that it’s critical to avoid running up new debt after you pay down your credit card balances with a balance transfer.
Rewards and Cash Back
Another way you can use credit cards to offset inflation costs is by making good use of rewards and cash back opportunities. When you use these financial tools wisely, rewards credit cards could give you the chance to earn points, miles or cash back on your everyday spending.
The key to making the most of credit card rewards is to avoid going into debt. It’s important to pay off your full statement balance each month to avoid paying expensive interest fees (and potentially damaging your credit score with high credit card utilization ratios).
If you can earn credit card rewards or cash back while still avoiding debt, there are many ways to use those extra benefits to your advantage. Cash rewards, of course, are the most flexible. But you can redeem points and miles for nearly free travel (and more), and perhaps learn ways to maximize your credit card rewards for more value as well.
Depending on the credit cards you open, those accounts may come with other money saving benefits as well. Premium rewards credit cards may feature travel credits, free airport lounge access, hotel credits and credits for Uber, digital entertainment memberships, etc.
Both Chase and American Express card holders may be able to save money by activating discount offers with specific merchants. Plus, there are generous credit card bonuses for new cardholders that could be worth hundreds of dollars or more.
Credit Card Debt Balloons As Inflation Takes Hold
Credit cards can be a powerful financial tool that offer many benefits. But the downside with this financing method is that, if you’re not careful, you could wind up with expensive debt that’s difficult to pay off in the future.
As inflation numbers soar upwards in the US, many consumers are relying more on their credit cards to get by than in the past. In March 2022, the Federal Reserve reported that credit card debt rose to around $ 840 billion— $ 71 billion higher than the end of Q1 2021.
A new survey for Forbes Advisor also found that inflation has the majority of household budgets under strain. And to cope with the widespread rising costs, 40% of respondents with credit cards rely on those accounts more than they did in the past.
Is inflation good for credit card holders?
Inflation can have a negative financial impact on credit card holders in several ways.
First, rising costs can make it more challenging to stay on budget. Many consumers turn to credit cards when their earnings don’t go as far as they did in the past. And when card holders charge more than they can afford to pay off in a given billing period, credit card debt follows.
Credit card debt itself can become more expensive due to inflation. When the Federal Reserve raises interest rates, lenders typically follow suit. So if you owe outstanding debt on a revolving account like a credit card, you might see an APR hike in the future (if it hasn’t happened already).
When credit card APRs increase, you might experience negative side effects such as:
- Longer time frames for paying off debt
- Higher minimum payments
- Unaffordable payments
Yet, again, if you can pay off your credit card balances in full each month, none of these issues will apply to you. Rising credit card interest rates are only a problem if you carry a balance on your account.
Frequently Asked Questions (FAQs)
When will inflation go down?
No one knows when inflation will slow or prices may start to decline. Yet experts do have their predictions about how things might change. Unfortunately, those predictions often contradict one another and it’s difficult to know which theory may prevail.
Robert Triest, economist with Northeastern University, stated in an interview with the university’s news outlet that inflation trends are likely to slow and start to decline over the next two years. Yet Bill Conerly, economist and Forbes Senior Contributor, anticipates that inflation numbers may continue to rise through 2023 despite the Fed’s rate hikes.
Only time will tell what happens where inflation is concerned. Rising costs may continue to plague American households for the foreseeable future. Or consumers might be able to enjoy some relief if prices start to move back toward more affordable levels.
Should you opt for a personal loan instead?
Interest rates on personal loans are also likely to rise in response to the Fed’s recent rate hikes. Yet depending on the type of debt you owe (and the interest rates on those accounts), a personal loan might make sense.
If you can qualify for a lower interest rate on a personal loan than you’re paying to your current creditors, consolidating your debt could save you money. Plus, if you use a personal loan to pay off credit card debt, you could lower your credit utilization rate and perhaps see a credit score increase in response.
Good credit comes with its own great perks. So this strategy has the potential to help you save money in more ways than one.