Debt Stress: How Debt Affects Mental Health (2024)

If you’re currently experiencing a mental health crisis or if you’re considering harming yourself or others, please get help immediately. You can call the free and confidential National Suicide Prevention Lifeline at 1-800-273-TALK or visit your closest emergency room for immediate intervention.

Debt has long been a problem for many Americans. No news there. But the debt problem has become even more pressing recently, thanks to a cost-of-living crisis that has households across the country struggling simply to make ends meet.

You name it, and chances are the price for it is up.

Food? Yep, up 5.8% in 2023 and going up another 2.9 in 2024.

Housing? You best be sitting down for this one. Home prices are up year over year by 4.1% as of July 2024 with the median home price $439,455.

Car insurance? (Wait! Even car insurance?!) Boy howdy. As of February, it had increased by a whopping 20.6% in the U.S. over the prior year, according to S&P Global Market Intelligence.

Not surprisingly, we’re increasingly abusing our credit cards to pay those burgeoning bills. The Federal Reserve Bank of New York says credit card debt is $1.14 trillion, the highest ever recorded. And guess what? There is a corresponding uptick in delinquency rates for most debt types. (Well duh!)

All this news is piling woe upon crisis upon uncertainty. But as we mentioned earlier, those distressing statistics don’t tell the whole story. They don’t tell the human side of struggling through a shortage of money.

Fact is, debt stress syndrome is linked to a number of mental health issues, including a massive increase in denial, anger, depression, and anxiety.

Among the negative effects of debt stress are low self-esteem and impaired cognitive functioning. That means you can’t learn, remember, be attentive or solve problems as well when you’re under stress because you can’t pay your water bill.

It’s rare for someone to never have money problems. Trouble happens, jobs disappear,marriages fail, people get sick, theirhomes lose valueand bills just keep piling up.

No one is immune.

Debt and Mental Health

Does debt cause mental illness, or does mental illness cause debt?

Yes.

Research by the Money and Mental Health Policy Institute finds that the following two facts co-exist:

1. People with problem debt are significantly more likely to experience mental health problems.
2. People with mental health problems are also more likely to be in trouble with debt.

How strong is the connection? It’s strong. Very, very strong. Nearly half (46%) of people in trouble with debt also have a mental health problem, and people experiencing mental health problems are three and a half times more likely to be in trouble with debt than those who don’t report mental health issues, according to the Money and Mental Health Policy Institute survey.

A Forbes Advisor survey in late 2023 found that 54% of adults with debt say they’re stressed by it, and 60% of respondents say their financial stress has led to disagreements in their relationships. Debt stress and associated mental health issues can increase usage of drugs and alcohol, as well as cause other adverse behaviors such as a change in appetite, procrastination, and nervousness.

Here’s How Debt Affects Mental Health

• Denial:Many consumers continue to spend compulsively with no consideration given to their deteriorating financial condition. They put off dealing with problems until some outside event – credit denied,threat of foreclosure, legal action, harassing phone calls fromdebt collectors – forces a change. Meanwhile, interest charges and late fees pile up.
• Stress:It’s the opposite of denial. Debt and stress are like co-joined twins; money trouble on one side, tension, and strain on the other. The strongest predictor of financial strain? You guessed it: Credit card debt. Stress manifests itself in obvious ways – lack of sleep, loss of focus, nagging worry.
• Anxiety:In this context, anxiety is the physical manifestation of stress: a rapid heartbeat, shortness of breath, dry mouth, a headache, and the shakes. It’s stress with the scab torn off. The National Institute of Mental Health estimates 40 million Americans suffer from anxiety. Financial worries are a massive trigger.
• Anger: The medical world has a name for this phenomenon: Debt-Anger Syndrome. Victims get mad at creditors who continually send them bills; mad at the mailman for delivering the bills; mad at their bosses for not paying them more; mad at their spouses for not making more money; mad at their kids for needing new braces; and mad at themselves for getting into this fix. This not only can ruin relationships, but the physiological effects can lead to issues such as migraines and heart disease. They can also reduce your resistance to infections.
• Depression: After denial and after anger, hopelessness sets in, along with low self-esteem. That can lead to even more debt since sufferers sometimes try to relieve their depression by treating themselves to a shopping spree or some other mental getaway. Depression does not discourage impulse spending; in fact, it has the opposite effect. But all that does is lead to more debt, which leads to more depression and despair.

At that point, people don’t much care whether their mental health issues are caused by debt, or their debt is causing their mental health problems. They just want the pain to end.

Sadly, it ends in the worst possible way far too often. People in debt are more likely to commit suicide than those who aren’t experiencing financial difficulties.

How Debt Stress Affects Different Age Groups

Debt is aggressively egalitarian, eager to afflict anyone regardless of age, race, education level or personal resources. Each of those groups, however, manages debt and its related challenges in different ways.

For example, young people increasingly begin their adult lives with crippling student loan debt that affects every other aspect of their lives. Older folks, meanwhile, have accumulated debt over decades of living. Mortgages, credit cards, personal loans and more can create a crisis for those approaching retirement age, or even those trying to plan for their eventual retirement.

An analysis by Self Credit Builder found that people between the ages of 40 and 49 (roughly, Generation X) hold the highest amount of debt in the U.S., a whopping $4.21 trillion. But the study indicated that by 2030, Millennials (generally defined as people born between 1981-1996) are expected to be carrying an average debt of $228,891 per person, which would then account for the most total debt among the different age groups.

Here’s a look at the generally accepted breakdown of generations and how debt affects them.

Generation Z (Born 1997 to date)

People in this group are in the early stages of their working life. They’re just now figuring out how to afford major moves such as starting a family and buying a first home. In a late-2023 survey by EY, a consulting company, over 50% of 1,500 Gen-Zers reported being “extremely worried” about money and making bad financial decisions. Another study, this one by McKinsey in 2022, found that this age group has the highest level of mental illness of any generation.

Millennials (Born 1981-1996)

Data from PYMNTS.com, a finance and commerce research hub, found that 73% of people between the ages of 30-39, which is a big chunk of Millennials, report living paycheck to paycheck. Why? Student loan debt, along with their financial exposure in the Great Recession and their struggles with cost-of-living increases. In a survey by Greenwald Research, nearly one-third (32%) of Millennial respondents said their mental health is poor or, at best, only fair, and 71% said thinking about their finances causes a great deal of stress.

Generation X (Born 1965-1980)

From their mid-40s to their late-50s, people often find themselves grappling with a trifecta of stress-inducing debt: a mortgage, raising children, and caring for aging parents. Not surprisingly, then, a whopping 60% of Gen X respondents in a 2023 Bankrate survey said their mental health is being negatively affected by money issues.

Baby Boomers (Born 1946-1964)

Financial stress raises its unsightly head for this generation as retirement looms (or has already arrived). According to the Bankers Life Center for a Secure Retirement, only 34% of Boomers think they’ll be able to retire without debt. That’s thanks to mortgages that haven’t been paid off, credit card debt that hasn’t been trimmed down, car loans that are still outstanding, and other outstanding balances that are still owed. Interestingly, only 19% of Baby Boomers reported being extremely stressed about finances in a Bankrate survey, perhaps because society’s perception of mental health has evolved since this generation’s young adult years.

Those Aged 75+ (Born Before 1946)

From 1999 through 2019, the total debt burden being carried by people 70 or older increased by 543%, according to the Federal Reserve of New York. Some of the usual suspects are responsible: mortgages and auto loans, for example. But it’s also true that people are living longer, which gives them more opportunity to take on added debt for necessities such as healthcare. The resulting financial stress can cause depression and anxiety, which can compound age-related cognitive decline and memory issues.

» Learn More:Avoid Debt as a Senior – Resources for Economic Security

Debt’s Effects on Physical Health

There is no wall between your mental and physical health. The two overlap and affect each other in ways both good and bad.

When debt and stress are involved, the effects are seldom positive. Debt and stress can affect your physical health in a number of ways, including but not limited to:

• Blood pressure:which is also influenced by diet and overall condition. Add stress and this can become a serious problem.
• Heart rate:which can also affect your heart’s rhythms, can in turn lead to stroke and other events.
• Immune system functions: which is weakened by chronic stress, making you more susceptible to illness.
• Mood:which has consequences internal (like your mental wellness) and external (such as your important relationships).
• Memory:which can be impacted, and which then can create further stress.
• Weight gain or loss:which has implications for blood pressure and heart health.

Advice on Managing Financial Stress & Debt

How to deal with debt stress? The ideal way is to avoid it. While that sounds impractical, there are ways to cope with stress by developing strategies and financial habits that can reduce both debt and stress:

• Writing down debt: To help address your debt, it helps toknow when you have too much debt.
• List all your debts: Once you’ve identified them, analyze your inventory. You need to know which debts are unsecure and which are digging the hole deeper with high interest rates.
• Prioritizing what debts are most important: Your home is more important than your department store credit card. It isn’t always that obvious, but you can make sure your first payments address your most important needs.
• Set a budget: This is where the discipline comes in. Once you have a good idea of your monthly obligations, it is important to make – and stick with – a plan to meet them.
• Reduce household expenses: This is the more difficult aspect of sticking to a budget – eliminating unnecessary costs.
• Identify spending habits: Do you need that third TV streaming service? Can you get by with ads on your music streamer instead of that monthly fee? There are apps and websites that help you itemize the automatic monthly payments you have signed up for.
• Start paying down debt: Once you have organized your finances, stick with your plan. When there is unexpected money, throw it at your debt rather than throwing it away.
• Seek help for mental health: If all your efforts don’t lower your stress levels, or if all that focus on your debts actually increases your stress, don’t try to deal with it alone.
• Pay new bills immediately if possible: Adding to your debt load is the opposite of lowering your debt load.
• Seek help fromDebtors Anonymous: Debtors Anonymous is a group dedicated to helping people dig out of financial holes.

» Learn More About: How to Get Rid of Debt

Get Help from Mental Health and Financial Professionals

If financial difficulties such as debt are causing stress, depression and other mental health concerns, and mental health concerns are making it tougher to deal with financial difficulties – well, that is a spiral that you must find a way to slow down and stop.

Help is available in both areas. There are qualified experts who can provide counseling and advice about debt, and there are professionals equipped with strategies to alleviate mental health issues.

For the latter, a good first step is your doctor or other medical professionals. They may be able to help with minor mental health issues or refer you to a therapist or psychiatrist qualified to work with more severe issues. The coping mechanisms they offer can help when dealing with debt and other financial worries.

There are options to receivefinancial assistance to address mental health issues, so don’t let money be a barrier to treatment.

One path to good mental health is dealing with stress-causing issues directly. There are plenty of gooddebt-relief optionsavailable:

• Credit Counseling: Get advice from qualified experts who will help create a plan to deal with your specific issues. Credit counseling services are often nonprofit and FREE of charge.
• Debt Management Programs: DMPs are designed to combine credit card payments into one monthly payment with a lower interest rate. Such programs are offered by nonprofit credit counseling agencies.
• Debt Consolidation: Consolidating debt is when you group unsecured debt like credit cards and pays them off by taking out a loan from a bank, credit union or online lender to pay off the credit cards. You still must repay the loan, but the interest rate should be considerably lower and you’re only writing one check, instead of multiple checks.
• Debt Settlement: Settling your debt means paying less than what you owe. Achieving that is difficult and time consuming. Lenders are not obligated to accept settlement offers. It often takes 3-4 years to reach a settlement with those who do. By that time, the late fees and interest payments increase the balance you owe so dramatically that a settlement may only be for 10%-20% of what you originally owed. And debt settlement is a stain on your credit report that can lower your score 100-200 points.
• Bankruptcy: Bankruptcy protection comes in a couple of different packages, but it should always be considered as a last resort when other options have not been successful. If there is no way to repay your debts in five years or less, bankruptcy might be the best option.

Whichever road you take toward debt reduction and resolution, one benefit is likely to be a reduction in the stress and anxiety that may have led to depression or more serious mental health issues. Lifting the burden of debt from your shoulders will leave you more financial freedom and more discretionary income with which to enjoy it.