The Psychology of Debt: How it Affects Every Facet of Your Life

Debt is so much more than a financial problem. It may start with dollars and cents, but it can ultimately end up having an adverse impact on your emotional health and well-being.

If you don’t correct the underlying factors, you could end up doing permanent damage to your mental health.

The Lowdown on the American Debt Crisis

Americans are more in debt than they’ve ever been … and things don’t appear to be getting better any time soon. According to a 2017 report from MarketWatch, half of all Americans are currently living paycheck to paycheck.

Approximately 19 percent of adults have zero dollars to cover an emergency expense, and 31 percent have less than $500. Interestingly enough, only 1 in 5 people who are facing financial hardship actually fall below the poverty line.

This means most financial problems are self-inflicted. According to a separate study from NerdWallet, here’s the average American debt by category:

  • Mortgage: $180,018
  • Credit Cards: $16,245
  • Student loans: $50,868
  • Auto Loans: $29,058

Given high debt loads and minimal (if any) savings, it’s no wonder millions of Americans are struggling with a personal financial crisis, or the looming threat of one — even at a time when the larger economy is booming.

How Debt Damages Your Emotional Well-Being

Although debt obviously affects your ability to do such things as obtain a loan, it can also have an adverse effect on your emotional stability. Left unaddressed, your debt may do the following.

1. Make You Dread Everything

When you have debt hanging over your head, you may dread having to do anything and everything. For example, a simple task such as shopping around for auto insurance quotes becomes monumentally frustrating.

Since credit scores and insurance scores go hand in hand, you might do your best to ignore the issue, and end up paying triple what your peers do.

Or, instead of moving out of your crappy, expensive apartment and into something that’s both nicer and cheaper, you just stay put because the process is too cumbersome.

2. Cause Denial

It’s common for people who have substantial debts to live in denial. This is a defense mechanism that protects your ego and emotions in the short term, but it could wreck your mental health over the long haul.

Signs of denial include: leaving bills unopened; spending like you aren’t actually carrying debts; telling yourself that everyone is in a similar situation; and rationalizing impulse purchases.

3. Create Chronic Fear and Anxiety

Debt makes people anxious. Very anxious. Depending on your personality, this anxiety might emerge right away, or it could take months or years of accumulating debt to cause it to show up.

But at some point, it emerges as the primary emotion of your life. “As time passes your anxiety turns to fear:  fear of the debt, fear you will never be able to pay it off, fear you’ll become homeless,” personal finance blogger Maureen Campaiola writes.

“You lay in bed at night and worry about it all. That’s what debt is doing to you. And, even if you can make the minimum payment you’re still in a big mess.”

4. Cause Depression

When anxiety and fear are given space to fester, they eventually lead to depression. What starts as short, isolated bouts of feeling down could lead to chronic depression, where you’re unable to work and/or perform other basic functions. This creates a snowball effect that makes your financial situation even worse.

5. Upset Your Child’s Emotions

One of the scariest side effects of debt is the impact it can have on your child’s emotions. Even if you don’t think your kids are old enough to know what’s going on, they’ll almost certainly feel the impact of your stress. Over time, this can cause mental health issues to emerge.

Get a Grip on Your Debt

Debt doesn’t have to be something that destroys your life. Of course it will take time, but almost anyone can climb his or her way out of a difficult situation by doing the following:

  • Compile all your debt into a single document
  • Develop a budget
  • Eliminate unnecessary spending
  • Save up a cash emergency fund
  • Apply all surplus income to debt
  • Live below your means
  • Increase your income
  • Continue saving and investing

Some people may require years of following this plan to extricate themselves. Others may be able to accomplish significant results in just a few weeks or months.

Whatever the case may be for you, now is the best time to act!