While 2022 is in the rear-view mirror, one thing that isn’t is high inflation. While the U.S. economy slowed in the 4th quarter, it still grew at a 2.9% rate despite high interest rates and widespread fear of a recession. While that might seem like good news, it also means that inflation has remained higher than desired.
If high inflation is making it difficult for you to keep up with living costs, you might be considering a personal loan to buy you some time. However, a personal loan for inflation probably doesn’t make sense. While a personal loan can be beneficial when there’s an emergency expense, it’s not a solution to financial hardship.
Considering a personal loan for inflation? It’s not the best way to combat costs.
Inflation has created for many family necessities like food and gas. If inflation has increased your monthly expenses, you might be considering taking out a loan to help you catch up. While a personal loan is a beneficial financial tool to help cover major and emergency expenses, borrowing costs are also up across the board. That applies to all loan types including mortgages, auto loans, and home equity loans. If you borrow money right now, you’re probably going to be charged a higher interest rate than normal – even if you have good credit.
Another reason a personal loan for inflation isn’t a good way to counter higher costs is that you will likely have trouble making loan payments if you are already having a tough time covering your bills. If money is really tight, the last thing you need is another monthly bill.
How can I combat inflation costs?
Instead of borrowing money to combat inflation costs, rework your budget and remove as many unessential expenses as possible. If you are already living frugally, you might consider cutting back on how much you put towards your savings. While dedicating income to savings is a great practice, it’s important that you avoid taking on too much debt and spending money on interest. If you put money towards your 401(k) every month, you may also consider cutting back there if your paycheck isn’t making it through the month.
Another way to combat inflation is to speak to your manager about a raise. While some employers are making job cuts, the job market is still healthy. Look for ways you can show value at work and take on additional responsibilities to earn a promotion. A side gig can also make a big difference to your household, even if it’s just a few hours a month.
When is a personal loan a good idea?
While a personal loan isn’t the best way to address high inflation, they are useful for covering major, unexpected, or emergency expenses. If you need to fix a leaking pipe at home or repair your car’s brakes, a personal loan can be a great option. You can use a personal loan to cover just about any expense.
Summary
A personal loan can be the best option when you have an unexpected, large, or emergency expense. However, when it comes to combating inflation you’ll want to review your budget, adjust your spending, and look into opportunities for earning additional income instead of taking out a loan.
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