How does debt impact mental health?

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Key takeaways

Debt can significantly affect your mental health, leading to anxiety, depression, and chronic stress.
Mental health issues can lead to compulsive spending, impaired cognitive functioning, and denial.
To improve your personal finances and mental health, it’s essential to seek professional financial advice and access mental health support.

Debt and mental health are intricately linked. Persistent worry about unpaid bills, mounting interest, and financial instability can trigger anxiety, depression, and other mental health issues. If you’re struggling with bills, chances are high that your mental and emotional health are also suffering. The two go hand in hand, as many Americans know.

In this article, we will explore the profound impact of debt on mental and physical health and discuss strategies for managing both effectively.

How debt impacts mental health

Debt affects relationships, spending habits, and mental stability. It can be a significant source of stress that can deeply impact your mental well-being. Beyond stress, it has been linked to anxiety, depression, anger, and increased suicide rates.

Stress: Constant worry about managing monthly payments, dealing with creditors, or even facing potential legal actions can lead to chronic stress. This persistent state of stress is often referred to as debt stress syndrome. People experiencing this may have trouble sleeping, suffer from a lack of focus, nagging worry, and struggle with daily decision-making.

Anxiety: Debt anxiety is the physical manifestation of stress. It’s symptoms include headaches, rapid heartbeat, shortness of breath, muscle tension, dry mouth, and gastrointestinal issues.

Depression: The feeling of hopelessness that accompanies owing large amounts of money can be overwhelming. People may feel trapped with no way out, leading to severe depressive episodes. Debt depression can erode self-esteem and lead to feelings of worthlessness and despair. In some cases, the sense of failure and guilt can be so intense that it contributes to suicidal thoughts or actions.

Anger and Irritability: The frustration of dealing with mounting bills, coupled with the constant fear of financial ruin, can make individuals more prone to outbursts and conflicts. This anger can strain relationships with family and friends, creating an additional layer of stress and isolation. The emotional toll can thus create a cycle of anger and guilt that is difficult to escape from.

Debt is not just a personal finance issue; it’s a profound mental health concern. The stress, anxiety, depression, and other emotional challenges it brings can significantly impact your well-being. Acknowledging the connection between debt and mental health is the first step in breaking the cycle.

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How mental health challenges may influence your money management

Mental health issues can significantly impact financial decisions, leading to behaviors that exacerbate financial problems. Understanding how mental health can influence your finances is essential for developing strategies to mitigate these effects.

Denial: Some individuals avoid looking at their bills, bank statements, or credit card balances because facing their financial reality is too overwhelming. This avoidance can lead to missed payments, accumulating late fees, and worsening credit scores. The longer financial problems are ignored, the deeper the financial hole becomes, making it harder to recover.

Impulse Purchases: The stress and emotional turmoil caused by debt can lead to poor spending habits. Some individuals may engage in retail therapy as a way to cope with their feelings, buying items they can’t afford in an attempt to momentarily alleviate their stress or depression. This behavior only compounds the problem, increasing the amount owed and perpetuating the cycle of financial instability and emotional distress.

Decreased Job Performance: Anxiety, depression, and other mental health conditions can impair concentration, decision-making, and productivity. The lack of energy, motivation, and focus can make it difficult to perform job duties effectively. When job performance suffers, individuals may earn less money due to missed promotions and bonuses or even face job termination. Without a stable income, managing finances becomes increasingly difficult, leading to further woes and increased mental disorders.

Mental health statistics suggest that money is a big stressor, and debt makes health problems worse. A Northwestern Mutual study found that money is the dominant stressor for 44% of Americans. According to the Money and Mental Health Policy Institute, 46% of people with debt also have mental health issues, and 86% of people with mental health diagnoses say debt makes their mental health worse.

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The cycle of stress and additional debt

Drowning in debt and depression often creates a vicious cycle where financial stress exacerbates mental health problems and vice versa. For example, someone experiencing depression might turn to compulsive buying as a coping mechanism. The resulting debt increases financial stress, which in turn worsens the depression.

To break the cycle, you must address both the mental health and money issues. Seek help from a mental health professional to learn how to deal with emotional distress. At the same time, look into financial counseling. A personal finance counselor can help created a realistic budget and develop a plan to manage and reduce debt. While it’s not easy to tackle both issues at once, it is the best thing you can do for your finances and mental state.

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Potential impacts of money and stress

The dangers of debt extend far beyond personal finance, deeply affecting various aspects of life. One of the most immediate consequences of debt is the overwhelming stress it induces. Untreated chronic stress can lead to anxiety, depression, and even physical health issues such as hypertension and heart disease. The constant worry about meeting payments and managing mounting bills can erode mental well-being, leading to poor decision-making and unhealthy coping mechanisms like substance abuse or compulsive spending.

Furthermore, the consequences often ripple out to affect personal relationships. The strain of financial instability can lead to conflicts with family and friends, increasing feelings of isolation, anxiety, and despair. In the workplace, stress can reduce productivity and job performance, jeopardizing employment and further deteriorating your financial situation. Understanding these potential impacts is crucial for addressing the holistic effects of debt and developing strategies to mitigate its profound consequences.

Financial stress statistics by generation

Financial stress affects everyone regardless of age, but how big a stressor it is depends on your generation. Statistics show that young adults are more likely to report high levels of financial stress compared to older generations. The negative effects of debt on young adults can significantly impact their finances and future opportunities.

Generation Z (1997-2012) faces substantial student loan payments, credit card bills, and the rising cost of living. A lot have delayed major life milestones, such as buying a home or starting a family, due to worries about money. According to EY’s 2023 Gen-Z Segmentation Study, 50% of Gen-Zers say they are “extremely worried about not having enough money.”

Millennials (1981-1996) owe an average of $42,000 each, according to Northwestern Mutual’s 2018 Planning & Progress Study. Nearly 70% of Millennials feel anxious about their finances, with many citing their student loan debt as a primary source of stress.

Generation X (1965-1980) is caught between the responsibilities of supporting aging parents and their own children. This “sandwich generation” has the highest percentage of debt, including mortgages and credit card balances. 42% of Gen-Xers feel stressed about their finances.

Baby Boomers (1946-1964) are reaching retirement age, but not only 34% think they will be able to retire debt-free. Many still are making mortgage payments and have car loans, personal loans, and credit cards. Generally, Baby Boomers are more optimistic. 55% said they felt in control of debt in a recent Bank of America survey.

Coping strategies for financial stress

When debt is ruining your life, it’s time to take control and manage both your bills and your mental health. One of the first steps is talking to trusted friends or family members about your financial struggles. The simple act of talking about your problems can help to relieve stress. The other person provides emotional support and possibly practical advice but does not need to solve anything.

If stress is negatively impacting your physical or mental health, it’s time to see a doctor. Do you notice your sleep patterns, eating habits, or energy levels changing? If yes, it may be time to seek mental health help before chronic stress takes its toll. Take care of yourself and see a doctor who can help treat the symptoms.

Mental health counseling is another valuable resource for anyone experiencing stress. A therapist can help you develop coping mechanisms to handle the stress, anxiety, and depression associated with outstanding balances. Look for a counselor that accepts clients on a sliding scale or call a free hotline. The National Mental Health Hotline offers free and confidential 24/7 support via (866) 903-3787.

Advice on how to cope with debt stress

Debt can feel like an insurmountable burden, affecting every aspect of your life. Learning how to not let debt stress you out involves adopting practical strategies and seeking support. Here are some essential steps to help you manage your finances and alleviate stress effectively.

Acknowledge your debt and write it down

The first step is to acknowledge your debt. Avoiding or denying the problem will only make it worse. Take a deep breath, gather all your financial statements, and write down everything you owe, including the interest rates, minimum monthly payments, and due dates. This process may be daunting, but it will help you gain a clear understanding of your financial situation and make it easier to create a realistic plan to tackle it.

Prioritize your debt

Once you have a clear picture of what you owe, the next step is to prioritize it. Not all debts are created equal; some may have higher interest rates, while others may have more severe consequences if left unpaid. You’ll want to pay your rent or mortgage before you pay your credit card bill. It’s a good idea to pay off the high interest debt (i.e. credit card) before the low interest student loan debt since the credit card balance will grow faster.

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Create a budget

Budgeting isn’t fun, but it is highly necessary. Start by writing down how much you earn and subtracting essential expenses—rent, utilities, groceries, etc. Then, look at how much you have left. Put most of that into debt repayment. You will want to put some aside for savings and keep some as fun money. Being able to spend money each month on treats – eating out, entertainment, shopping—will make it easier to stick to your budget and save money.

Another way to budget is the 50/30/20 method. You divide your income into the following categories:

50% essential expenses
30% wants
20% debt and savings

The problem with this method is that if you’re drowning in unpaid balances, you need to put more money toward debt than discretionary spending.

Seek out mental health counseling

It’s important to take care of your mind and body. A mental health professional can help you develop healthy coping mechanisms, manage stress, and improve your overall well-being.

Therapy can also provide a safe space to talk about your personal financial struggles without judgment. Look for a therapist who offers sessions on a sliding scale. These days, there are also apps and online services that make mental health care and counseling more affordable.

Speak with a credit counselor

Credit counselors are trained professionals who can help you manage money effectively. A credit counselor can offer you personalized financial advice tailored to help you get back on track. They provide pre-bankruptcy counseling, financial education, budgeting assistance, and debt management plans.

Credit counselors can negotiate with creditors on your behalf to lower interest rates, waive fees, or extend payment terms. They can also help you consolidate your debts into a single, manageable payment. Working with a credit counselor can alleviate some of the stress associated with managing multiple debts and provide clear timeline for paying off everything you owe.

Consolidation may be a way out.

Find out how to consolidate debt.

Start paying down your debts

You can start small. Put whatever money you can towards repaying creditors. Getting started will make you feel better.

Two popular payment strategies are the snowball and avalanche methods. The avalanche method is where you pay off the highest interest-rate debts first to save money, (while making the minimum payment on all the others). The snowball method has you pay off the smallest bills first to give you quick wins. Whichever method you choose, the key is to stay consistent.

Work with the right debt settlement companies

If paying down your dues on your own feels impossible, you may want to look into debt settlement companies. Debt settlement companies negotiate with creditors on your behalf to lower the total amount of money owed and accept a reduced lump sum payment. Your creditor then forgives the remaining balance. This is also called credit card debt forgiveness. This form of debt relief can help you avoid bankruptcy and regain financial stability but will have a negative impact on your credit score and charge fees.

For many people with mental illness, credit card debt forgiveness can provide a much-needed fresh start and a chance to rebuild their financial health. When selecting a company to work with, look for one with a strong track record, transparent fee structures, and positive customer reviews. Choose a company that is accredited by the American Fair Credit Council (AFCC) or the International Association of Professional Debt Arbitrators (IAPDA).

Avoid companies that make unrealistic promises or demand large upfront fees. Debt settlement companies cannot charge a fee until you and your creditor agree on a payment. A trustworthy company will provide a clear plan and keep you informed throughout the process. If you think you’ve encountered a scam, report it to the Federal Trade Commission (FTC).

Resources for debt and mental health

Navigating the complexities of debt and its impact on mental health can be challenging. We’ve compiled a list of resources that provide support and guidance for individuals struggling with both mental health care and debt reduction.

National Foundation for Credit Counseling (NFCC): The NFCC offers free and low-cost credit counseling services to help individuals manage debt, create budgets, and develop financial plans. Visit their website at www.nfcc.org to find a certified counselor near you.
Debt.org: This comprehensive resource provides information on debt relief options, including consolidation, settlement, and bankruptcy. It also offers educational articles on managing money and financial health.
Mental Health America (MHA): MHA provides resources and tools for managing mental health issues related to financial stress. Their website, www.mhanational.org, includes information on finding mental health professionals and support groups.
SAMHSA’s National Helpline: The Substance Abuse and Mental Health Services Administration (SAMHSA) offers a confidential, free, 24/7 helpline (1-800-662-HELP) that provides information and referrals to local mental health services.
Consumer Financial Protection Bureau (CFPB): The CFPB offers resources and tools for managing debt and protecting yourself from predatory financial practices. Visit their website at www.consumerfinance.gov for more information.
Debtors Anonymous: Is a 12-step program for people with unmanageable debt. The group is designed for those who want to stop spending more than they can afford to pay. Meetings are offered face-to-face or virtually.

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Frequently asked questions

1. What does debt do to your mental health?

It can lead to anxiety, depression, and chronic stress. The constant worry about finances can result in a lack of sleep, reduced productivity, and strained relationships. Over time, this stress can erode self-esteem and overall well-being, even leading to suicide.

2. How to mentally deal with debt?

Start by acknowledging and accepting your financial situation. Create a realistic budget and prioritize your bills. Seek support from credit counselors and mental health professionals. Practice stress-reduction techniques like mindfulness and exercise. Openly discuss your concerns with trusted friends or family to alleviate feelings of isolation and anxiety.

3. How can financial problems affect mental health?

Financial issues can significantly affect mental health by causing chronic stress, anxiety, and depression. The constant worry about bills can lead to a lack of sleep, decreased concentration, and lowered productivity.

Bottom line

Debt affects mental health regardless of age or income – though the risk increases for people living below the poverty line. Suffering from stress, anxiety, and depression can, in turn, lead to owing more money. It’s a vicious cycle that must be dealt with. Talk to a doctor, mental health professional, and credit counselor to get a handle on your finances and mental state. Take the time to address your debt through credit counseling, a payment plan, or a settlement company. Creating a plan to tackle outstanding balances can help relieve stress and anxiety and set you on a better path.

Remember, you are not alone in facing these challenges. Reach out, seek help, and begin your journey towards financial and emotional resilience today.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

How Debt Impacts Your Mental Health