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What happens to debt during inflation and deflation—does it grow heavier or lighter?
Updated: 11-Apr-2025

During inflation, debt becomes lighter in real terms because the money you repay is worth less. For example, if you borrowed ₹1 lakh, inflation reduces its value over time, making it easier to repay. But in deflation, debt becomes heavier. Prices fall, income may shrink, but the debt amount remains the same.

This increases the real burden of debt, leading to defaults and reduced spending. That’s why inflation is sometimes called a “debtor’s friend,” while deflation can be a “creditor’s dream” but an economy’s nightmare.

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