What is the impact of debt on mental health?

Laura Miller

by , Freelance financial journalist

at PensionBee

15 June 2020 /  

June 2020

Lady sitting on sandy beach meditating in front of breaking waves

Money worries are one of the biggest sources of stress for most of us, particularly if we’re struggling with debt. Debt can trigger anxiety, depression, and cognitive impairment like forgetfulness and reduced problem-solving ability. For those who have a history of mental illness, debt poses an even greater risk.

In a survey by Money and Mental Health, 93% of respondents admitted to spending more cash when struggling with their mental health. The charity also found that over 50% of people in debt suffer from poor mental health, and are especially vulnerable to money-related stress. Here, we investigate the relationship between money worries and overall mental health, and highlight why it’s important to get on top of your finances to achieve peace of mind.

Understanding the different types of debt

While not getting into debt may seem like an obvious place to start, in reality, it can be difficult to avoid, particularly at key life stages. Debt is often thought of in a negative light, however if it’s a result of an investment in your future, perhaps it isn’t such a bad thing after all. Student loans and mortgages are forms of debt, yet even so these are commonplace and can be necessary to help you take the next step in life.

It’s when debts become unmanageable that they become a source of stress. For example, outstanding credit card bills and loans with high interest repayments, can quickly spiral out of control and become hard to manage. If you have any debts, it’s important to prioritise the most pressing and try to clear this first. Once that debt is cleared you can reprioritise and set about tackling the next most pressing.

Free debt advice

Whilst having debt may seem overwhelming, it’s important not to deal with it alone and seek support and guidance on how to get things back on track. Websites such as Money Helper, Citizens Advice and StepChange Debt Remedy offer free advice and support for anyone worried about their finances. PayPlan has a free online debt solution tool that you can use to give you a personalised debt solution.

Budget and save money

When it comes to getting your finances back on track, setting aside a few minutes each week to review your spending can provide a clear picture of where your money goes and where you could cut back to reduce debts and potentially start saving. Understanding your cash flow and creating a budget will help ensure you’ll always have money available for essentials and bills, plus a little extra. Staying on top of your finances can give you peace of mind that you’re planning for a more financially secure future, and will help you avoid any unnecessary debt.

Emergency fund

We all go through crises, emergencies, and unexpected setbacks, so it makes sense to prepare our finances as best we can. Experts suggest putting aside three months expenditure in case of any unforeseen circumstances, so it’s important to include contributions to an emergency fund in your budget. Saving for the unknown can help you get through any difficult situations that may arise such as emergency home or car repairs, or a loss of income, and will ensure you don’t have to take on unexpected debt.

Writing off debt due to mental health

In certain circumstances, you may be able to ask your creditor to write off the debt. You’ll need to provide evidence of your mental health condition and finances to show that you’re unable to repay your debt. Not all creditors will agree to write off debt, but they may mark your debt as ‘non-collectable’. This means that whilst your condition stays the same, they won’t chase for your repayments. As part of your conversation with a creditor, you may wish to refer them to the Money Advice Liaison Group (MALG)‘s guidelines, which demonstrate the best practices for creditors to consider for people who are in financial difficulties and have an underlying health condition.

Things to do to improve mental health

Taking care of both our mental and physical health is equally important, and can have a really positive impact on our day-to-day lives. Here are a few tips and tricks that you can employ to boost your mental health.

Speak to loved ones

Loved ones are often our biggest supporters. It can be stressful to deal with debt and money worries, so speaking to those closest to you can really help. When you explain what you’re going through to your friends and family they can provide support and help to alleviate some of the pressure of sorting everything out on your own.

Friends and family can provide support and help to alleviate some of the pressure of sorting everything out on your own.

Stay active

Regular exercise has benefits for both physical and mental health. Exercising releases endorphins (which make us feel happy), and boosts our sense of self-esteem. Having 30 minutes of exercise a few times a week has been linked to reducing depression, stress, and anxiety. Even a 5-minute walk outside can improve your mood and have a positive influence on health.

Take time to reflect

Taking time out of your day to meditate and clear your mind can enhance cognitive functions such as memory, awareness and overall focus. Meditation is also a great way to destress and boost your overall mood. Alternatively, keeping a journal can help to consolidate your thoughts and bring peace of mind. Mindfulness practices like these have been linked to an overall reduction in depression, anxiety, and stress.

Find a support network

Seeing a therapist or a counsellor is another way to look after your mental health. Trained professionals offer a safe space where you can often work through the things that are on your mind without fear of judgement. Therapy sessions are a great way to seek advice and support, and can give you a better understanding of your feelings and the things you can do to better take care of your mental health.

Pay into a pension

Debt isn’t the only part of personal finance that can cause stress. An uncertain future often contributes to anxiety, stress, and depression, when retirement should be about relaxation and financial freedom. Setting up regular pension contributions sooner rather than later, will give your retirement savings more opportunities to grow over time. Taking control of your pension today will allow you the peace of mind to better focus on the present.

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. This information should not be regarded as financial advice.

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