What Is the Impact of Debt on Mental Health?

Whether you’re actively paying down debt or trying to find the right strategy, debt can place quite the burden on your mental health. From anxiety about making payments on time to wondering if you’ll ever get out from under it, it’s important to recognise the role debt plays in our lives. 

In Australia, people are facing record amounts of debt. A reported 37% of Aussies were struggling to pay down their own debts in 2019, and that number is only rising. As costs of living continue to skyrocket, more people are feeling the burden of debt in its many forms. 

We know debt can impact our credit rating, our ability to take on new loans, and even our property. But how does debt affect our mental health? Researchers believe it takes a greater toll than we realise, and that’s why it’s important to be both proactive and mindful with your strategy.

How Does Debt Affect Our Lives?

Debt is a part of life for many, but these effects can run deeper than we know. While we understand rationally that carrying a lot of debt is bad for our financial futures, it can also be harmful to our mental health. 

Unfortunately, those who struggle to pay their debts are more than twice as likely to have mental health challenges like depression and anxiety. This could mean they feel constant worry, experience periods of extreme overwhelm, or even feel a sense of hopelessness about the future. 

However, the mental health toll doesn’t stop here. Those facing debt in any form are more likely to also report the following impacts –

  • Stress – Of course, stress and debt seem to go hand in hand. Studies show that high amounts of debt lead to feelings of stress, anxiety, and depression. 
  • Hopelessness – It’s also possible to feel hopeless about the future when facing debt. You might wonder whether there’s anything to look forward to, and you’ll stop making plans entirely. 
  • Denial – While some report feeling like their debt is weighing them down, others fall on the opposite end of the spectrum. Denial can mean not opening bills, ignoring late payments, and avoiding dealing with the debt at all. This only leads to further problems. 
  • Resentment – Debt also affects our relationships. Handling debt in a marriage or partnership is more likely to lead to divorce or separation as feelings of resentment build over time. 
  • Anger – Accepting one’s debt is also challenging, and this leads to feelings of anger that are hard to overcome. Debt from an unforeseen event like job loss, family emergency, or even a car breakdown can lead to a constant reminder of something negative.
  • Regret – From regretting purchases you made to wondering what led you to make poor financial decisions in the first place, this regret is a heavy burden to carry. 
  • Fear – Debt also brings some level of fear. Whether you’re worried about debt collectors, losing your property, or declaring bankruptcy, this fear is a very real threat. 
  • Embarrassment – Lastly, debt could leave you feeling embarrassed or ashamed. There is still a large stigma around debt and asking for help, and this could leave you feeling alone and worried about tomorrow. 

These symptoms above hint at just how detrimental debt can be in every part of our lives. From relationships to planning for the future, owing creditors is a tiring experience.

Stress is defined as a non-specific response your body has when it demands change. It’s a real, psychological, and physical way your body responds to danger. Whether your heart rate quickens or you struggle to sleep at night, these effects can cause long-term problems for your mental and even physical health. 

If you’ve struggled with debt in any capacity, it’s helpful to remember that you’re not alone. Everyone feels some combination of the above impacts on their own mental health. The good news is you don’t have to live under debt any longer. By taking action, no matter how small, you take back control of your life and your future. 

The Danger of Inaction

The biggest challenge of these mental health symptoms above isn’t overcoming them, it’s avoiding the temptation of inaction. When we feel burdened by our debt, it’s easy to bury our heads in the sand. Even if you’re feeling stress about the amount you owe, asking for help and acknowledging there is a problem is no simple task. 

Researchers agree that debt can lead to poor mental health and even mental illness. Whether you lost your job, faced a big life change, or you made a few unnecessary purchases, it’s essential that you take action as soon as possible. 

There is no such thing as being too late to tackle your debt. Once the feeling of hopelessness and shame sets in, you might feel like there’s no path forward. This is never true. 

The best treatment for these mental health challenges is getting out of debt altogether. While this is easier said than done, it’s proven that taking small steps and seeing some results is enough to bring optimism back into your life. 

Turn Your Mental Health Around

You don’t need to pay off your debt overnight to turn around your mental health. By making a few simple, key steps, you can be on your way to a brighter tomorrow. 

Because making big changes is intimidating, it’s important to stay reasonable with your plan. Biting off more than you can chew will only add to that feeling of overwhelm. How do you get started? Try these steps:

  • Mindset change – First, you need to change the way you think about debt. Accept that it’s time for a change, and remind yourself that these feelings are only temporary. 
  • Create a clear picture – When you’re drowning in anxiety and fear for the future, you likely don’t even know how much debt you have. Create a clear picture of your accounts, how much you owe, and minimum payments. The true reality might surprise you. 
  • Make a budget – A budget is essential to any debt payoff plan. When you make a budget, you’re in the driver’s seat. You’re fully in charge, and this leads to a sense of accomplishment. 
  • Set realistic goals – Don’t fall into the trap of setting goals you can’t reasonably meet. Instead, set realistic goals, like paying off your smallest credit card within 3 months or eating out only once a week. 
  • Talk to loved ones – Accountability goes a long way towards your debt payoff success. Defeat the stigma by talking to your loved ones about your debt and your goals. Have someone hold you accountable. 
  • Work with an expert – Last but not least, don’t be afraid to ask for help. A debt professional can guide you towards the right tools and resources for success. 

When you begin these steps above, you start to experience new mental health effects. Those who have a realistic debt payoff plan report feeling relief knowing that they’re setting themselves up for a secure future. 

They also feel a sense of accomplishment knowing they’re making big strides in their financial literacy. Finally, there is a feeling of freedom knowing they’re in charge of their own destiny when it comes to their money and goals. 

Debt can turn into an endless cycle. You get into a small amount of debt, feel stress and denial, and this leads to more debt. By the end of the cycle, you might wonder if there even is a path out. In reality, it’s never too late to turn your life around for the better. 

Once you start your debt payoff journey, you’ll likely experience the burden lifting from your shoulders. You might not even have known just how much you were struggling until suddenly you’re on track. Taking action isn’t easy, but it makes a world of a difference. 

Find Your Own Sense of Accomplishment

It’s undeniable that debt leads to mental health challenges regardless of whether you have “good” or “bad” debt. That being said, paying your debt off effectively also has effects of its own—and they’re all positive. 

From relief knowing that you’ll owe less in the future to knowing that you’re in control of your own money, it’s time to take action for the better. Unfortunately, it’s never been easier to fall into debt. The good news is you also have all the resources you need to overcome this debt. 

Debt comes in many forms: credit cards, car loans, personal loans, medical debt, and so on. When you see that balance creeping higher, you might find yourself facing fear and worry. This is normal, but it’s also temporary. These psychological and emotional issues associated with debt are very real, but they don’t have to be forever. 

If you’re ready to move closer to your own feelings of accomplishment, contact the experts at Debt Busters today on 1300 368 322. With over 15 years of experience helping Aussies of all backgrounds create strong financial plans, we’re here to help. You don’t have to take this debt payoff journey alone. 


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Debt Busters is an Australian owned business which was founded in 2005 - since then we have been able to help thousands regain financial control.

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