The effects of debt and how we can break the cycle

Dani Skerrett

by , Team PensionBee

at PensionBee

21 Oct 2022 /  

Oct 2022

woman looking at paper bills

Debt is a universal problem. In fact, the average UK household debt in July 2022 was over £65,000. While this figure takes into account things like mortgages, it also includes unsecured debt too, such as credit cards and personal loans. With the rising cost of living, organisations like the Financial Conduct Authority (FCA) and MoneyHelper are urging consumers to get help as soon as possible if they are struggling financially.

Unfortunately, there continues to be a lot of stigma, shame and embarrassment when it comes to talking about debt and, more importantly, seeking help to deal with it. And with mental health problems being so closely linked to debt, it can be even harder for people to get the help they need.

According to the Money and Mental Health Policy Institute, people with experience of mental health problems are three and a half times more likely to be in ‘problem debt’. The term problem debt is used when individuals who are in debt are simply unable to afford their repayments. On the other hand, being in problem debt can sometimes cause mental health problems by driving feelings of anxiety, shame and depression and so it turns into a vicious cycle.

Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “Avoidance is a common coping mechanism for people with anxiety which makes it hard for those people to reach out when they are struggling financially.”

What can be done to break this cycle?

1. Actions for individuals to take

Reaching out and speaking to someone is a great first port of call when it comes to sharing the burden of debt. For some people, this can be a very difficult step to take so in the meantime, there are online resources that can support and show individuals what help is available when it comes to managing their debt. Citizens Advice and Turn2Us both have a range of resources including tools to calculate what benefits you might be entitled to.

Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “There is a concern that it will take forever to check your eligibility but these tools are designed to make it easier for people to use and the information is provided in a way that people can easily understand.”

2. Awareness and understanding in the wider infrastructure

Understanding the link between mental health problems and financial difficulty is important, and this is even more true within organisations that are in place to support people who are suffering. Chris believes frontline healthcare workers, like GPs, need to recognise the financial impact of mental health problems. In some cases, a financial strain like debt might be the driver of their patient’s illness, so signposting to resources and organisations that can support is crucial at this stage.

Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “When people are getting treatment for mental health problems, there needs to be an understanding of how that can impact their finances.”

3. The role of creditors

In the same way that organisations supporting people with their mental health should be aware of financial difficulty, organisations, like banks and other creditors, should also be aware of the impact debt can have on people’s health. Chris believes clear and supportive communication from creditors is crucial to helping people overcoming debt. One in five individuals who are in debt feel dread when opening bills and letters, so ensuring creditors are well trained to communicate in a non-threatening way is something the Money and Mental Health Policy Institute think is an essential step.

Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “People often have more than one debt, so they’ll be receiving letters from different creditors and even if one has a really good standard of communication and they only turn to bailiffs as a last resort, for the other six or seven creditors that people are having to deal with, that might not be the case.”

Where to get help now

If things are starting to get on top of you, mental health charity Mind recommends six ways you can manage your money and mental health, from speaking to someone you trust to understanding your money habits. Find out more on our blog.

In response to the current cost of living crisis, the FCA and MoneyHelper are recommending consumers contact their lender if they’re struggling to make payments. Where appropriate, lenders can arrange reduced or take no payment for a period to support individual needs and circumstances. Find out about talking to your creditor.

MoneyHelper are also on hand to give free, expert debt advice whether you need help with prioritising bills or support with living on a smaller income. The service is government backed.

In the latest episode of The Pension Confident Podcast, Philippa Lamb is joined by Research Officer at Money and Mental Health Policy Institute; Chris Lees and Chief Operating Officer at PensionBee; Tess Nicholson as they discuss the effects of debt and what to do if you find yourself in it. Listen, watch on YouTube, or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Anything discussed on the podcast should not be regarded as financial advice.

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