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How to Combat Inflation

Published September 24, 2023
4 min read

Key points about: how to combat inflation

  1. Inflation is the rate at which the cost of goods and services rises.

  2. Inflation typically results in an increased cost of living for the average American.

  3. Cutting back on expenses, increasing income, and reducing high-interest debt are just a few ways that might help you combat the effects of inflation.

If you’ve been saving up for a big purchase like a house or car, you may now be feeling like the finish line has been moved further away. The car you wanted may be pricier now than when you started saving. You may notice yourself paying higher interest rates. Consumer goods have been getting more expensive as the U.S. Bureau of Labor Statistics reports that the annual inflation rate in the United States was 4% in the fiscal year ending May 2023. Inflation is the rate at which the costs of consumer goods rise. Inflation results in the same amount of money having less purchasing power over a period of time. For instance, $5 may have bought you a fast-food burger a year ago, but now the same burger costs $5.20. The result demonstrates that $5 no longer lets you buy the same amount of goods that it did a year ago.

Inflation has a significant impact on most households as it reduces purchasing power and increases the cost of living. The thought may worry you, but there are small steps you can take to combat the impact of inflation on your day-to-day life. By reducing non-essential spending, taking more serious measures to save, and leveraging credit cards to get cash back rewards, you may be able to fight the effects of inflation on your life.

Consolidate your credit card debt

If you have one or more outstanding credit card balances, it may be beneficial to consolidate them.

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One option for consolidating your debt is through a personal loan or with a balance transfer credit card. Transferring your debt to a credit card with a low interest rate for an introductory period may help you to pay off your balance faster and save on interest payments. The Federal Reserve reported several interest rate increases in 2022 in an attempt to bring down inflation in the long run. However, as the Consumer Financial Protection Bureau points out, if you have a variable interest rate tied to the prime rate, any increases in the prime rate may result in an increase in your credit card interest rates. To avoid interest rate hikes on your credit card balance, you may wish to consider balance transfers or other types of debt consolidation that can make this easier.

Cut back on spending where you can

Simple cutbacks in your spending can go a long way toward saving more. Take a close look at your monthly budget, and try to reduce spending on nonessential items such as clothing and accessories, streaming service subscriptions, eating out, and transportation costs like gas and car services. Instead, try switching to walking, biking, or using public transportation wherever possible. You can save money and burn a few more calories at the same time. 

While shopping, make it a habit to compare prices, and avoid higher prices by choosing affordable options such as generic brands. If you don’t already have a monthly budget, create one. Budgeting can be a helpful way to keep track of your spending. Checking that budget regularly can help ensure you’re saving as much as you need. If personal spending is a problem,  set up alerts to let you know when you’re close to going over budget.

Increase the amount you save

During periods of high inflation, reevaluating your budget can be helpful too. If cutting back on luxury or nonessential spending is the first step, then maximizing your savings is a good second step. Once you've managed to make some meaningful cutbacks in your nonessential spending, consider allotting this extra cash to your savings. This money can go straight to a savings account or can be used to repay any debt with variable interest rates, including credit card debt or loans. Try to focus on debt that may be at risk of increasing interest rates such as credit card debt.

In addition, consider saving your tax refund or any bonuses from work when possible. Direct them to your savings right away so you aren't tempted to spend it. Periods of high inflation make it more important to increase your rainy-day fund. Most people plan their emergency fund with three or four months’ worth of expenses in mind, but inflation reduces your purchasing power so your existing emergency fund may not go as far as it did before. You may need to reassess the cost of living in your area and increase your emergency fund accordingly. Consider any increases in rent as well as rising prices for groceries and gas.

Consider a cost-effective credit card

Another effective step you can take is choosing a credit card that brings value at a low cost. Credit cards may charge several fees including annual fees, foreign transaction fees, late payment fees, and more. But you can choose a card with low or no fees. Discover has no annual fee on any of our cards.

Earn cash back you can spend with Discover. One dollar earned is worth one dollar you can spend.1 Depending on the card you choose, you can get cash back on certain transactions or even additional rewards or savings at gas stations, grocery stores, and restaurants.

With the Discover it® Cash Back Credit Card, earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn 1% cash back on all other purchases – automatically.

Increase your income

If possible, you can also try to increase your income to beat the rising cost of living. Talk to your manager about your recent projects and successes and try to negotiate a raise at work. This may not be easy for everyone, but it doesn’t hurt to try. You may also want to consider seeking out a higher-paying job if a raise is not possible or not enough. Keep your resume updated and keep your profiles on job search portals active to signal your interest to recruiters.

If neither of those seems like the right option for you, consider getting a side job or starting your own business. A small business could be as simple as taking up freelance photography or design projects (depending on your skills). You might also be able to use your skills to get hired on task sites or apps that help you get paid for small jobs. Before taking up a side hustle, check your employer’s policy on moonlighting.

Inflation can be hard on your finances, but with the right savings strategy, you can avoid a cash crunch. Focus on low-cost substitutions for your regular purchases, and try to cut back on nonessential spending. Try to augment your income where possible, and look into increasing your savings as much as you can. You can also use tools like coupons or rewards credit cards to fight the price increase on essential expenditures like groceries, gas, and meals.

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  1. Cash and Miles products: You earn rewards which are stored in your rewards balance and must be redeemed in order to spend. Cashback Bonus® can be redeemed via statement credit, electronic deposit to a linked account, paying at select merchants, purchasing gift cards, or donating to charity. Miles can be redeemed via travel credit, statement credit, electronic deposit to a linked account, or paying at select merchants.
  • Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.