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How to Combat Inflation

6 min read

Last Updated: July 12, 2024

Table of contents

Key Takeaways

Inflation is the rate at which the cost of goods and services rises.
Inflation typically results in an increased cost of living for the average American.
Cutting back on expenses, increasing income, and reducing high-interest debt are just a few ways that might help.

If you’ve been saving up for a big purchase like a house or car, inflation may make you feel like the finish line is further away. The car you want may be pricier now than when you started saving. Or you may notice higher interest rate offers on loans. Even everyday items like groceries and gas prices seem to cost more, making saving money that much more difficult.

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.

Defining inflation

So what is inflation? Inflation is the rate at which the costs of consumer goods rise. This rise in costs results in the same amount of money having less purchasing power over 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 as it did a year ago.

It’s true that consumer goods have been getting more expensive recently. The U.S. Bureau of Labor Statistics reports that the annual inflation rate on the consumer price index in the United States was 3.5% in the 12-month period ending March 2024.

How to fight back against rising prices

Inflation has a significant impact on most households because it increases the cost of living. Here are some small steps you can take to combat the effect of inflation on your day-to-day life.

Consolidate your credit card debt

If you have one or more outstanding credit card balances, it may be beneficial to combine them into a single loan type, so you only have one payment—preferably with a lower interest rate. This process of combining debt is debt consolidation.

Two options for consolidating your debt are through a personal loan or with a balance transfer credit card offer. 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.

Did you know?

The Federal Reserve raised interest rates in 2023 to curb inflation. You can avoid initial credit card interest by consolidating debt with balance transfers.

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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, streaming service subscriptions, eating out, food delivery, and transportation costs like car services.

While shopping, make it a habit to compare prices. Things like avoiding higher prices by choosing affordable options such as generic brands can go a long way over time.

Create a monthly budget

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.

You can also use your new savings to apply towards 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—you’ll pay less in interest if you pay off the balance faster.

Increase the amount you save

Once you make meaningful cutbacks in your nonessential spending, consider allotting any extra cash to your savings. This money can go straight to a savings account or 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 work bonuses when possible. Many people find it helpful to put this money in a savings account unconnected to their checking account to avoid the temptation of transferring money to spend.

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. Make sure to re-examine this amount for inflation.

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 avoiding higher interest rates on your credit cards. Choose 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, and no foreign transaction fee.

With Discover, you earn cash back not points. So, every $1 you earn is worth $1 when you redeem.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 unlimited 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 isn’t possible or not enough. Keep your resume updated and keep your profiles on job search portals active—this signals 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 projects (depending on your skills). You might also be able to use your skills to get jobs on task sites or apps that help you earn money 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 strategy, you can avoid a cash crunch. You might consider using more than one of the approaches tackled in this article. By adopting these measures, you can better navigate the challenges of inflation.

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