The phenomenon of a dollar declining in value can have various effects on your ability to pay off personal debt. The specific effect on your situation depends on a number of factors.
Causes of a Declining Dollar
The dollar can decline against other currencies for a variety of reasons. A long period of low interest rates from the central bank, such as that experienced in the years immediately prior to 2010, can result in the cheapening of the currency. Another cause could be the failure of Congress to control the budget deficit, which ballooned in 2009 and 2010 thanks to a weak economy, a $900 stimulus package and the passage of the Affordable Care Act of 2010. The world markets could be discounting the effects of expected inflation within the United States, which lessens the dollar's value against other currencies. Furthermore, the mortgage crisis of 2008 to 2010 undermined confidence in the assets underpinning the U.S. financial system, which largely relies on pools of mortgage-related debt.
Negative Effects of a Falling Dollar
A falling dollar actually helps some Americans and hurts others. When the dollar declines against other world currencies, our imports become more expensive for Americans to purchase. This hurts people who buy imported goods, such as fuel. Historically, the effects on fuel prices have been muted because in the past, the oil markets have been denominated in dollars. Nevertheless, a weak dollar means it can't buy as much abroad as it used to, leading to inflation. When combined with a period of low interest rates, this can be devastating to those who live on a fixed income.
Positive Effects of a Falling Dollar
A weak dollar, on the other hand, can help stimulate employment. When the dollar declines against other currencies, U.S. exports become more affordable to those abroad, even compared to their own domestically produced goods. A weak dollar tends to help manufacturers and farmers, who export much of their production abroad.
Effects on Debtors
If you have debts to U.S. creditors or any debts denominated in U.S. dollars, the declining dollar likely has no direct effect on your debt. However, if you have a long-term variable-interest-rate loan, such as an adjustable-rate mortgage, or ARM, the anticipation of a decline in the dollar could cause interest rates to rise, resulting in your mortgage payment increasing when it comes time for the rate to reset. If you have debts to foreign creditors denominated in foreign currency, and you earn your income in dollars, it becomes more expensive for you to convert your dollars into the foreign currency. However, if you're in an industry that benefits from a weak dollar, it may become easier to earn money.
Inflation and Debt
If the dollar's troubles aren't confined to weakness against other currencies but instead lead to a period of high inflation, that could favor the debtor, as you would have borrowed relatively expensive dollars but have an opportunity to pay them back with relatively "cheap" dollars due to the effects of inflation. This is only true, however, if you don't live on a fixed income. Furthermore, wages tend to be "sticky": They don't tend to rise immediately when inflation sets in. However, if you can sell other assets for higher prices or increase your income in line with inflation, it may become easier for you to pay back debt.
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