An article by Terry McBride discusses why inflation may actually be the preferable economic action to deflation. During deflation, a series of events is set off, ultimately leading to workers being cut and businesses slowing down. This is precisely what is happening in some countries in Europe, where taxes are raised and government spending is pulled back. The result? Debt management of household owners is seriously affected as their income is directly diminished.
On the other hand, inflation allows debtors to repay their loans, inasmuch as their wages cope with the inflation. With inflation, debtors can still pay their dues without a significant decrease in their salary. In the long run, the increase in interest rates is completely supported by the wages of Canadians.
What You Can Do
In the end, it’s a question of how you manage your debts with all the inevitable changes and adjustments in your finances. There are some convenient ways to do this:
For one, you can consolidate all your loans in one credit line. Debt consolidation can eliminate high-interest debts in your favor. With a single credit line, you can then decide on the manageable amount of monthly payment that will reduce interest costs best.
You can also do debt snowballing. The technique involves paying the minimum amount of each loan separately. You will then direct extra finances to paying off the minimum debt. Do this until you eliminate all your debts.
This may sound the least practical at the moment and very counterintuitive, but make sure that you have an emergency fund. Few people actually see the value of this, and it’s not hard to understand why. An emergency fund addresses no immediate need; in fact, having one may be dangerous in times of deflation. However, with Canada’s preference in increasing interest rates, having an emergency fund will not only provide you with financial security but also an added level of protection when it comes to paying off all your outstanding debts.
Nobody said debt management is easy. That’s precisely why we’re here to help you. However, what you need is a mindset bent on paying off all mortgages-whatever it takes.
