How the Psychology of Debt Affects Your Financial Health

Debt can have a severe impact on people’s lives that goes beyond just causing them financial stress. Whether one is struggling with credit card debt or student debt, dealing with debt stress can cause a lot of emotional distress.

Someone struggling with paying off their pending dues or controlling their spending habits can experience high levels of anxiety. This, in turn, impacts their quality of life and can even lead to more serious mental health problems.

Yes, debt-related stress is not entirely up to your control. But you can make specific efforts to develop healthier financial habits and manage your emotional triggers. This post will cover how debt affects people’s mental health, how to identify the triggers, plus give tips to overcome financial stress.

The Emotional Roots of Debt

Let us first discuss how debt affects people's mental health. During times of financial strain, people may experience a wide range of emotions. They may feel overwhelmed thinking about their pending dues, worry about their family, and more.

There are certain emotional triggers that are commonly associated with such times of financial worries. Sometimes, these emotions are a consequence of their situation or act as a cause. Here are some examples:

• Guilt/Shame: Individuals with financial difficulties can often feel a great deal of shame or guilt about their debt. They may feel incapable of making good financial decisions or that they are failures at managing money correctly. Comparing themselves with other people in their lives who have a good financial situation might further dampen their self-esteem.
• Anxiety: People may feel anxious or highly stressed out, worrying about their low financial stability and lack of resources. The worry about repaying their pending due can further add to their internal stress. Outwardly, it can negatively impact their relationships and personal quality of life.
• Depression: Dealing with the anxiety from debt for a long time can heighten a debtor’s bad mental health condition further. They are at risk of falling into depression when they lose hope of getting out of debt or constant financial stress. Studies show that people who have debt have three times higher chances of getting depression, stress, and anxiety.
• Impulsive buying: In some cases, debtors engage in emotional spending as a result of debt. They may start making impulsive purchases to relieve their stress about their financial situation. That further increases their financial problems. In turn, they feel guilty about their impulse spending, and the cycle continues.
• Avoidance: Some people react avoidantly when dealing with financial anxiety. They may start to ignore their bank statements, bills, or even collection calls instead of facing the situation. This can, in turn, aggravate the financial risks more, as missed payments can lead to additional debt piling up, drop credit scores, and possibly lead to legal action.

Additional effects of debt stress:

There are multiple ways in which the stress related to debt can impact the physical and mental health of individuals. Here are some other ways in which financial stress can impact debtors, which further contribute to their stress:

• Bad physical health: Ongoing stress may lead to physical reactions like migraines, stomach aches, headaches, sleep problems, etc. Those suffering from other ailments and chronic health problems may notice their condition deteriorating somewhat.
• Adopting unhealthy coping strategies: Some people may adopt harmful coping mechanisms for managing stress, like drinking, substance abuse, and overeating. Reportedly, 24% of American adults admitted in one survey that they turned to overeating for stress management. These habits further lead to more serious medical conditions like obesity and diabetes.
• Delaying medical treatment: People often decide to delay getting help for managing their situation because of their existing bad financial situation. A Federal Reserve report shows that 28% of adults in the U.S. skipped medical care due to concerns about healthcare costs in 2022.

Indeed, managing debt can impact one’s mental health negatively. Similarly, some mental health conditions can exacerbate the situation and lead to more bad financial choices, eventually increasing their debt. It is very important to highlight the possible emotional triggers for debt to plan a suitable approach to improve their mental well-being.

Developing good spending habits and creating a supportive environment where people can express their money troubles without judgment is necessary. This will help one successfully stop the cycle of debt accumulation and emotional spending.

Recognizing Emotional Triggers with Debt

There are certain steps you can take to identify your emotional triggers with debt that can coax you towards emotional spending.

1. Track your expenses: Firstly, prepare a detailed record of all your expenses. Then, identify which areas you are spending most when you are making those purchases and the possible underlying reason. Search for a pattern.
2. Track your emotions: In addition to listing your expenses, you should also note your emotions before and after each purchase.
3. Determine the trigger: Compare both groups of data to understand your recurring emotional triggers. For example, do you spend more money when you feel guilty or ashamed about your financial situation? Do you avoid your bills or payment reminders and miss payments that way? Determine what type of emotional triggers are impacting your spending habits. Also, understand if there are external influences that are causing impulsive spending, like peer pressure or social media influence.
4. Ascertain your wants and needs: Take time to decide what your necessary expenses are and what are unnecessary expenses. Then, take practical steps to cut down on emotional spending, like preparing a separate small budget for discretionary expenses.

Overcoming Debt Anxiety and Emotional Spending

You can use a variety of solutions to work on your triggers with debt and manage your mental health. The following are some strategies to try:

Tackle the debt head-on with the proper steps

Make a conscious effort to eliminate your debt. For this, seek guidance about debt relief from certified professionals like financial advisors.

If you have multiple sources of debt, like personal loans, credit card debt, etc., you can use a debt consolidation program to combine it all into one. Then, you can pay off this single amount at a new interest rate and within a specific period. Alternatively, if you want to settle your debt instead, you can work with debt settlement companies. Research your options to see which strategy works for you and use it to get out of debt.

Prioritize mindful spending

Practice mindfulness with your money. You can adopt steps like meditation to reduce your stress and get help from financial advisors to improve your financial knowledge. Then, you can adopt suitable steps to improve your financial habits, like following a reasonable budgeting plan, getting credit counseling, etc.

Take breaks

Whenever you feel the urge to shop during a stressful moment, you can take a minute to yourself first. Practice meditation; breathe in and out to calm yourself. Then, think about why you want to shop at that time and try to recognize the underlying emotions at that moment.

Logically explain to yourself what benefit you can expect from the purchase you want to make. “In session, I urge clients to pause and consider whether the item is something they need right now,” says Antoinette Bonafede, senior associate and therapist at Gateway to Solutions. “Instead of acting on the urge, I ask my clients to keep a list of items. The act of waiting frequently decreases impulsive spending. We pick one item once a month and consider price, utility, and impact. Waiting helps prioritize needs, minimizes frivolous spending, and increases the appreciation of getting an item after waiting.”

You might lose the urge to shop when you think about it rationally.

Adopt healthier lifestyle habits

Instead of spending more money to avoid your anxious thoughts, adopt other habits whenever you feel overwhelmed. For example, you can play a sport, try out a new activity, go out for a walk, etc.

Consistently track your progress

It is important to constantly track your expenses to see your spending habits. After adopting new practices to reduce your impulse spending, check if you are progressing better with your financial goals. Do this once every week or month, at least.

Use the Emotional Freedom Technique

Another method you can try to manage your stress is the Emotional Freedom Technique (EFT). It is a type of therapy that involves combined elements of acupressure and psychotherapy. The EFT specialist taps on certain meridian points on the patient’s body with specific emotions or thoughts in their mind. This technique can help release some of the emotional stress and allow you to find balance with your financial habits.

Get professional mental health support

You can reach out to certified mental health counselors to help you navigate your emotional burden better. They may help you understand your complex emotions related to money. Plus, they may provide personalized advice that you can use to improve your self-esteem and tackle other underlying issues.

Conclusion

There is a notable connection between debt and mental health, somewhat in a cyclical manner. There are emotional triggers that can disturb your mental health when you are in debt. At the same time, your financial struggles may trigger certain emotions that further add to your stress and well-being.

Take measures to systematically compare and identify your emotional triggers with spending. Then, you should adopt certain steps consciously to curb your impulsive spending and improve your financial habits. That way, you can achieve satisfactory emotional and financial freedom with time.

Sources:

https://ific.org/media-information/press-releases/2022-food-health-survey/

https://www.federalreserve.gov/publications/files/2022-report-economic-well-being-us-households-202305.pdf

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7327393/