Rising debt: what to do when money is your drug of choice

Households in many leading economies are living beyond their means and personal debt is damaging people’s mental health.

Last year, outgoings of UK households surpassed income for the first time in 30 years, with an average shortfall in 2017 of about £900, according to figures released by the Office for National Statistics in July. In the US, household debt has risen above the previous peak that it reached just before the financial crisis, hitting a record $13.2tn in the first quarter of 2018. Even in China, where citizens were once known for their saving habits, household debt is also fast becoming a worry.

Personal debt can be an important cause of poor mental health. Brad Klontz, Founder of the US-based Financial Psychology Institute and author of Mind Over Money, says: “In the US, debt is consistently rated as one of the top stressors. Numerous studies show that financial stress and job loss can lead to anxiety, depression and relationship problems.”

In the UK, mental health practitioners are regularly helping patients tackle money problems, according to the Citizens Advice Bureau. In research published in 2013, University of Southampton researchers found that a quarter of people with mental health problems were in debt.

Debt and mental health problems often drive each other. When we’re feeling low or stressed we often spend

Experts say it is hard to determine whether the poor mental health or the money difficulties came first. However Helen Undy, director of the Money and Mental Health Policy Institute, says: “If you’re in financial difficulties, you’re more likely to develop mental health problems. But people with mental health issues are also more likely to develop financial difficulties.”

Traumatic events in people’s lives such as job loss and divorce, she adds, are often the triggers that set people off in these spirals.

Simonne Gnessen of Wise Monkey Financial Coaching agrees: “Debt and mental health problems often drive each other. When we’re feeling low or stressed we often spend. Money is many people’s drug of choice.”

Once poor mental health and debt problems emerge, a bad situation can rapidly escalate. Jane Clarke, a psychologist and author of Resilience: Bounce back from whatever life throws at you, points out: “Anxieties can lead to poor work performance which prevents the individual from earning enough.”

Financial troubles can profoundly impact self-esteem. “Self-worth is often tied up with net worth,” says Mr Klontz. When people run into financial difficulties, some try to prop themselves up by running up credit card debts to maintain their lifestyles.

Individuals can become trapped in a vicious spiral, Ms Undy says. “As our mental health deteriorates, it becomes harder and harder to make good decisions and communicate.” Some people put off opening bills or contacting their bank manager or mortgage lender until the situation has deteriorated to the point where bailiffs are at the door.

Money worries do not afflict only the poor. People on lower incomes might be struggling to decide which utilities bill to pay, but those on higher incomes might be distressed to discover they cannot afford the mortgage and the school fees.

Ms Gnessen notes that too much money can also cause problems. “If you look at individuals who inherit a great deal of wealth, this can suddenly create a disparity in a couple. Suddenly two people who have shared everything equally find the balance changed completely.”

So, what can you do? The first thing is to ask for help. By doing so you share your problems, face up to them and learn that what you are going through is common and that you are not alone. This realisation in itself can result in a considerable reduction in anxiety.

Ms Undy says that there are a number of debt charities that provide counselling and practical help. Many financial service providers will also give people a breathing space or work with them to tackle debt. However, she warns debtors against making bad decisions because of pressure from debt collectors. “People often pay off the wrong debts first because commercial lenders can be very aggressive.”

Mr Klontz says it can pay to try to take the time to put financial worries into perspective: “Visualise the worst-case scenario. What is it? . . . For 90 per cent of people it’s really not the end the of the world — and in global terms they’d still be pretty well off.”

He also advises those worried about their finances to look for a silver lining to that cloud. “[Money difficulties] can actually be a good thing too. The average millionaire has had three financial catastrophes. They learn from them.”