It seems that every time I write or talk about the importance of paying off debt, someone comes along to challenge me.
“Why,” they ask, “should I pay off debt when I’ll be able to pay it off for pennies on the dollar when hyperinflation comes along.”
In an odd way, it’s like they’re looking forward to it. Almost giddy, in fact.
I’d like to establish a handful of truths about hyperinflation.
First, no country that has ever experienced hyperinflation is suddenly filled with well-off, debt-free homeowners.
“Woo-hoo! Come to Zimbabwe! We’ve got hyperinflation!”
No, hyperinflation is absolutely devastating and if you pay off a mortgage or other large amounts of debt with your cash, it just means that you’ll be using up the limited amount of money you have at a time when prices are skyrocketing at 100% or more per month.
To put that in perspective, a gallon of milk costs around $2.79. At 200% inflation, that price becomes $8.37 a month later and a whopping $25.11 by the second month!
Another truth to keep in mind is that your income will not increase! In fact, with the devastation wrought by runaway inflation, you may very well lose your job or business. If you’ve spent a large amount of your nest egg paying off debt, you will have to rely on whatever is left in order to survive.
Well-educated professionals in Argentina found themselves digging through dumpsters and trash cans for food. A college education and a good career will not protect you.
A third truth is that it will be far, far better to face hyperinflation debt-free and with money in the bank. Yes, the money will not have the same value, but 100K in the bank is way better than $500, or nothing. It is still worthwhile to pay off debt and save money now.
It’s even more worthwhile to purchase hard goods such as food, water filtering systems, firearms and ammo, and other survival goods and gear now while prices are reasonable.
In this video, I go into more detail, with the help of my whiteboards!, about what hyperinflation will mean to the average family.
Is it possible to prepare for this worst case scenario? In my book, Survival Mom: How to Prepare Your Family for Everyday Disasters and Worst Case Scenarios, I detail 13 ways to prepare. Here are a couple of those tips:
1. Pay off any debt that has an adjustable
interest rate as quickly and as soon as possible.
Unsecured credit card debt, in particular,
is vulnerable to increased interest
rates that would demand more and more
income from a family already strapped to
cover the most basic necessities.
2. While interest rates are low, investigate the
possibility of refinancing your mortgage. If
your mortgage rate is already low, and
fixed, focus debt repayment on anything
that has an adjustable rate.
3. Consider ways to decrease your transportation
expenses. Should gasoline prices
soar out of control, you may be very happy
for a job that is within walking or biking
distance. Can you sell that second or third
vehicle and pocket the savings in gas,
upkeep, and insurance? Be strategic and
purposeful in deciding which vehicles to keep, sell, and/or purchase.
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