Debt’s Quiet Stranglehold: How It Secretly Impacts Your Mental Well-Being

get help paying bills

Debt is an inescapable part of life for many Americans, affecting not only our financial stability but also our mental health and relationships. The stress from debt is real and pervasive, leaving many feeling like they're drowning.

With a staggering 77% of American households dealing with some form of debt and the cost of living continuing to rise, the pressure of managing debt can negatively impact the well-being of Americans.

A new survey by Forbes Advisor uncovered the impact debt has on Americans' mental health and how debt affects our relationships, spending habits, and outlook on future financial prospects.

How Americans Fall Into Debt

Many Americans find themselves tangled in debt, and there are common reasons why this happens.

  • 55% of respondents cited economic circumstances as the principal factor driving them into debt.
  • 48% of respondents attributed their debt to the pervasive influence of advertising and consumerism.
  • 42% identified difficulties in tracking and controlling their spending as a primary reason for their debt burden.

Where does most of this debt come from? Three-fourths (75%) of people point to credit cards as the main reason they're in debt. Personal loans are not far behind, with 68% of respondents citing them as a significant source of what they owe.

Mortgages also cause a lot of financial stress, with 66% saying mortgage payments contribute significantly to their debt. Over half of the respondents (55%) highlight medical bills as a significant reason they owe money.

Together, these factors paint a picture of why so many Americans struggle with debt and how difficult it can be to escape.

How Debt Impacts Mental Health

Dealing with debt isn't just a financial challenge; it also significantly affects mental health. According to the survey, 54% of respondents share that they often or always feel stressed by their debt circumstances. Another 32% say they sometimes feel stressed because of their debt.

As a result of debt-related stress, 48% of the respondents reported experiencing sleep difficulties, 40% noted an increase in anxiety levels, 38% reported a diminished social life, and 34% indicated they have depression.

These responses make it clear that debt doesn't just affect our wallets—it seriously impacts our mental well-being, making it even more important to find ways to cope and seek help when needed.

How Financial Stress Impacts Relationships

Debt doesn't just stress out individuals—it puts a strain on relationships, too. A significant 60% of people say that their financial stress has led to relationship disagreements.

Of those experiencing debt-related stress, a whopping 86% believe it's hurting their relationships, with 55% saying it's resulted in a loss of trust between themselves and their loved ones.

The Cycle of Stress and Additional Debt

When people are stressed about money, it often leads to even more financial trouble. In fact, 72% of respondents say they're somewhat or very likely to go further into debt when they're feeling stressed.

The survey looked at how debt-related stress affected people's spending; here's what the data revealed:

  • 38% of people said they missed payments and incurred extra charges because their debt stressed them out.
  • 23% mentioned that stress made it hard for them to manage their money and pay off their debts as planned.
  • More than half of the people (56%) felt guilty when buying things, and 53% felt overwhelmed when they needed to spend more money.

A significant 28% of those surveyed shared that carrying debt triggers impulsive spending. This means that, for some, the pressure and stress of owing money can sometimes lead to seeking temporary relief or comfort through buying. This, in turn, exacerbates the financial strain, creating a cycle in which learning how to deal with debt stress becomes even more challenging.

Tips on Effectively Breaking Free From the Debt Cycle While Prioritizing Mental Well-being

Breaking free from debt is a journey, but you can navigate it with the right tools. Here are some tips to help you find your way while keeping your mental health in check.

Prioritize Your Debt Wisely

The survey revealed that most people prefer paying off their oldest debt first. While this seems logical, it doesn't always make the most financial sense.

There are many types of debt — some more damaging than others. Instead of focusing on the oldest or smallest balance, paying off the debt with the highest interest rate can be more helpful. This is known as the debt avalanche method, and it can be beneficial if you have credit card debt stress. With this method, you can save money on interest and pay off your debt faster.

Cut Back on Non-Essentials

Consider using a budgeting app to get a closer view of your spending. Are you buying items you don't really need? Could you save money by dining out less or canceling subscriptions? Finding areas to pull back on your spending can free up money and help you pay down debt faster.

Before buying something, ask yourself if it's a need or a want. This can be especially helpful if your debt anxiety leads to impulse purchases. Thinking through non-essential buys and potentially delaying them can help curb impulsive spending and keep your budget in check.

Practice Money Mindfulness

Financial anxiety can be debilitating, and it often presents itself in physical ways like sleep disruptions, changes in eating habits, or obsessively checking your bank accounts,” says Jacqueline Howard, head of money wellness at Ally Bank. While money can be stressful, Howard assures readers there are ways to overcome their financial anxiety.

“When your brain is stressed, it can be difficult for you to make rational, forward-looking decisions,” says Howard. “It's important to first acknowledge the increased anxiety, then pause and allow your brain to calm down so that you can better problem-solve.” Howard calls this practice “money mindfulness,” which involves stopping to observe your thoughts, actions, and emotions when you spend money.

Howard also promotes conscious spending as a way to reduce financial anxiety. “This practice lets you spend without shame on things you absolutely love and cut back on things that are less important. For example, if you're a foodie who wants to visit a Michelin-star restaurant once per quarter, but you don't care about driving a fancy car, budget for the foodie experience and cut back on how much you spend on a car.”

Build a Safety Net

Saving money while paying off debt might sound tough, but having an emergency fund is essential. Start small. Even a little money set aside can stop you from going further into debt when unexpected expenses pop up.

Consider opening a separate high-yield savings account specifically for emergency savings. You'll earn interest on your balance each month, and the money will be out of sight and out of mind. Once you build the habit of saving money, it'll get easier to leave that money alone and let it grow.

Work With the Right Debt Settlement Companies

Another tip is to consider working with a debt settlement company. But be careful—while the best debt settlement companies can help you lower your debt, some can make things worse.

Do your research. Look for companies with good reviews, and ask lots of questions. Make sure you understand how they work and what they charge. Avoid companies that ask for money upfront or make promises that sound too good to be true.

Stay Positive and Seek Support

Break your financial goals into smaller, manageable tasks that feel more achievable. Celebrate small victories along the way to keep yourself motivated.

Remember, taking care of your mind is as important as taking care of your wallet as you pay off debt. Confronting anxiety about debt head-on and finding coping strategies is crucial. Educate yourself on the connection between debt and mental health. Find stress-relieving activities that work for you, whether that's exercise, meditation, or talking to a counselor.

Author: Michael Dinich

Title: Journalist

Expertise: Side Hustles, Passive Income, Investing

Bio:

Michael Dinich is a journalist, personal finance expert, and a true geek at heart. Michael founded Wealth of Geeks in 2017, and he's the executive producer of the Wealth of Geeks podcast. He's known for his relatable financial advice and passionate discussions about all things geek.