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Published: Apr 23, 2024 4 min read
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Consumers generally understand how inflation is bad for them: Everything costs more, and cash and savings lose value. But most people aren't aware that inflation can actually be a good thing in certain circumstances — namely, if you’re in debt.

The real value of debt decreases when inflation is high. Think of it this way: While wages don’t always keep up with inflation when prices are rising rapidly, they do tend to increase during these periods, and that can make it easier to cover the payments on a fixed-rate loan product such as a mortgage or student loan. The idea is that you're now earning more, but your old debt obligations are unchanged.

Only a fraction of consumers understand that inflation can benefit debtors in this way, according to a research paper from finance experts at Goethe University Frankfurt and the University of Chicago Booth School of Business. And for better or worse, when people are educated on this effect, they respond by spending money and borrowing more freely, according to the paper.