How to Reduce the Mental Cost of Debt

Debt's affect on our mental health is real. It's also manageable.

A man sits at a kitchen table with his head in his hands and stares bleakly at a laptop screen.

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One of the biggest sources of stress in the United States is money. In fact, according to a survey from Northwestern Mutual, 44% of Americans see money as a dominant source of stress in their lives. Additionally, 42% of Americans say that debt causes them high or moderate levels of anxiety. 

It’s clear that debt takes a toll on Americans, and the cost of debt goes beyond just the financial burden. In fact, you might be surprised to discover that there are ways debt can impact your physical health

On top of that, there’s a mental cost of debt, according to research recently published in the Proceedings of the National Academy of Sciences. Reducing that mental cost of debt is an important part of getting out of what the researchers label the "poverty trap."

Impacts of the Mental Cost of Debt 

Understanding the impact debt has on the mental state of the indebted can provide some insight into why it’s so difficult to escape poverty. The researchers found that debt’s mental burden includes:

  1. Impacts on cognitive function: The mental cost of debt leads to poorer decision making.
  2. Anxiety: With indebtedness often comes a higher level of anxiety, which has an impact on mental health.
  3. Present bias: A focus more on the present, rather than ability to make long-term financial plans, which can impair future finances and create a mental burden today.

After administering a modest debt-relief program, the researchers observed improvements in decision-making ability, a drop in anxiety, and the ability to start thinking long-term, rather than being biased toward the present.

This research offers some interesting insights that could help you reduce the mental cost of debt as you work to tackle obligations and move forward with your financial future.

3 Ways to Begin Reducing the Mental Cost of Debt

If you’re hoping to reduce the mental cost of debt in your own life, there are a few things you can do to feel a little more hopeful about the future, as well as get some relief from anxiety. When you have more headspace, you have the chance to better address the situation and get out of debt faster. Here are three things that might help.

1. Get a Debt Consolidation Loan

The research points out that the structure of debt takes its toll on families. Because many families have multiple debts, it can weigh on them more than having fewer debt accounts. 

“Conditional on owing the same amount, having more creditors is costlier psychologically because more accounts are ‘in the red,’ and losses loom larger, on the margin, for the first few dollars of each debt,” write the researchers.

One way to get a handle on the situation might be to consolidate debt. By combining smaller debts into one consolidation loan, you reduce the mental cost associated with having multiple accounts. This can reduce the mental cost of debt as well as reducing the financial cost, since less money might be going to interest.

2. Start a Debt Snowball

Another way to reduce the mental cost of debt is to simply create a plan and begin tackling debts one at a time. The debt snowball can be a good choice because it allows for a “quick win,” which eliminates an account. 

In fact, the researchers discovered that even getting rid of one debt account corresponded with an increase in cognitive function. The amount of debt relief in the study wasn’t as important as the ability to clear one account. 

“Improvements in anxiety were also significantly linked to debt-account clearance, while there was no effect of debt-relief amount,” according to the paper.

Being able to get rid of an account is likely to reduce the mental cost of debt more than having a big chunk of money to use to pay off the debt. Using a strategy like the debt snowball could be one way to systematically get rid of debt accounts—and help reduce the mental burden with each retired account.

3. Get Help If Needed

Social support is an important part of maintaining mental health. If you’re struggling with your obligations, feeling alone might be one of the ways that the cost of debt takes its toll on your mental health. Finding social support and getting help with your debt can help you reduce that mental cost.

If you aren’t sure how to go about tackling your debt, or if you need help creating a plan, you can go to to find a debt counselor near you. An accredited counselor can provide some social support, as well as help you put together a debt management plan that allows you to begin paying off debt in a way that reduces the mental burden.

Debt can take its toll on your mentally as well as financially. These mental burdens can, in turn, intensify your debt problems by reducing your ability to make good financial choices and to plan for the future. When you get help and start paying off debt, you’ll be in a better place to make good decisions and build a better financial future.

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