Getting Out of Debt Improves Judgment, Reduces Anxiety

According to a new study, getting out of debt reduces anxiety and improves cognitive function. You can improve your decision-making ability by getting rid of your debt.

The psychological costs of servicing debt

Chronic indebtedness afflicts rich and poor nations alike. One in four families in the lowest income quintile in the United States spend more than 40 percent of household income on servicing their debts.

The mental costs are debilitating. The psychological costs of (or “debt mental-accounting costs”) exacerbate financial hardship because the repayment burdens divert resources from more productive uses.

In other words, the more time you spend thinking about debt reduces the amount of time you can think about other things, like saving, getting a better job, or budgeting more effectively.

The impact of chronic debt . . . is psychological, not just financial . . . [and] impairs psychological functioning and decision-making . . . This is because debt is . . . is viewed as costly mental accounts that consume cognitive bandwidth.

Reducing debt improves psychological functioning,
Qiyan Ong, Walter Theseira, Irene Ng

Servicing debt impairs your ability to make deliberative, economically rational choices. Previous studies have looked at this relationship, too. One study looked at the psychological effects of farmers before and after harvest. Another study examined urban poor people before and after payday.

Getting out of debt allows you to escape a debt trap

The longer you stay in debt, the more it may affect your financial choices. Over a long period of time, even full debt relief may not eliminate chronic stress because “debt scarring” may permanently alter your decision-making abilities. It’s better to act sooner, rather than later, once you fall behind. It’s better to declare bankruptcy, even, than to simply spin your wheels, going nowhere.

Getting out of debt could have a positive effect on future budgeting choices because it motivates people to alter behaviors.

We help people with debt problems

Since 2008, Lee Legal has assisted thousands of people seeking debt relief. If you are suffering psychological effects of debt, call our office and schedule a free consultation. We may be able to help you, too. Bankruptcy may be the best choice you can make for your mental health.