Inflation Debt
Effects of Inflation on Debt and Buying Power
Inflation is defined as a general increase in prices and fall in the purchasing value of money. With inflation, you’re generally able to buy less and less with the same amount of money. You’ve probably seen inflation happen over your lifetime. If you’re in your 30s or 40s, you were probably able to buy a candy bar and a soda for just $1 when you were a kid. Now, you could probably barely buy a candy bar for a $1, much less a soda. Because of inflation, you’re generally now able to buy less for $1 than you were several years ago.
Inflation and Paying Off Debt
In terms of repaying debt, inflation is typically considered to favor the debtor since you’re paying the creditor back with devalued dollars. In other words, you borrowed $100 last year and got the benefit of that $100. This year, the same goods would have cost $110 and you’re only paying your creditor the original $100 you borrowed. Thus, the c