The Psychological Effects of Being in Debt

by Scott Sery on January 22, 2013

creditDebt can be a useful tool when it is used correctly.  But even when used properly, it can do strange things to our emotions.  While most people do not mind going into debt to buy a house, or attend college, and often not even to purchase a new car (these are referred to as good debt), there are few that are comfortable with racking up large amounts of debt on their credit card (referred to as bad debt).  How does carrying debt affect us?

We have a desire to become debt free.  If you do a search of the web you will come across thousands of websites that are dedicated solely to getting rid of debt.  Why are there so many people anxious to get rid of their debt?  The answer is simply that being debt free feels good.  The emotional feelings that being in debt causes are not comfortable, so people often hurry to get rid of their debt even though it is often more logical to invest their extra money.

When it comes to money matters, logic is the clear winner.  There is never a time where relying on your emotions will get you ahead in the game.  We saw this during the last recession.  People panicked as the market went down; many of them pulled their money out of their investments as it neared the bottom.  They sat in cash for too long and missed a good portion of the recovery.  Following the same logic, we should only pay off debt that is costing more than we can expect to reasonably earn on investments in the long run.  Since investing over the course of 20 or more years should easily earn you a 7% rate of return, almost all investments should just be allowed to carry out their course with only minimums being paid (the exception, of course being credit cards and others that carry a higher interest rate).  But almost nobody follows the logical rules when it comes to debt.  The reason is that they do not like being enslaved to it.

One of the basic human rights is the right to freedom; freedom to choose, to worship, to think, to believe, and so forth.  Being in debt makes you a slave, you have to work to earn money to pay off that debt.  You do not get a choice (except bankruptcy, but the long term negative implications make bankruptcy so it is not even an option for most people).  Psychologically, you are a slave to your debt.

This psychological imprisonment is one of the worst feelings a person can feel.  There is nothing tangible, but the weight of the debt can cause you physical discomfort.  The thought of foreclosure can cause sleepless nights.  The idea of making more money so you are no longer a slave can consume you, raising your blood pressure and putting stress between you and loved ones.  The worst part is, you are “doing this for them,” but they don’t appreciate your hard work.  This debt, that is supposed to be a useful tool, can end up destroying what you have worked hard to achieve.

In order to avoid this worst case scenario, take some steps now to make sure you are not a slave to debt.  If all you have is a few small, low interest debts, you are doing well.  Pay the minimums if you can and invest the difference.  If the discipline to do so is too hard, you have two options. Wipe out the smallest first (little wins) or the highest interest first (biggest savings).  If debt is destroying you psychologically, the little wins will help you have the strength to keep going and not get burnt out.  To find more money in your budget, take a look around the debt management section and see if you can pick up a few tips to make your life easier.

If you are currently carrying bad debt, I encourage you to join the debt movement.  Starting in February, the personal finance blogging community and ReadyForZero will be helping people pay off $10 million of debt in just 90 days.  You also have the chance to sign up for up to $10,000 worth of debt scholarships.


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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website Sery Content Development
  • Can’t wait to be debt free and feel light again. I only have a mortgage and other “good” debt, still, the feeling is there. The debt movement is an amazing initiative, I hope many get motivated by it.

  • I totally agree with logic being the best course in terms on money decisions. My girlfriend’s student loan debt pay off is both logical and emotional. Her fixed rate loans are right at 6.8% which is right around what we would expect from investment and her other loans are variable rates that will rise above that as soon as interest rates start increasing. I don’t plan to prepay our low fixed rate mortgage though. I would rahter invest that money!

  • moneybulldog

    Great advice to pay off high interest debt first. I’ve been hearing a lot about the debt movement, sounds like a great idea!

  • Bucksprout

    Wow what a great blog. Debt good or bad limits your options. I’m glad you addressed the psychological effects of debt, the feeling of debt holding me back is difficult to handle emotionally. Im so excited for the debt movement.

  • John S @ Frugal Rules

    It’s amazing what being in debt does to ones psyche. I remember how I felt when I was in massive debt and I never plan on going back. It is so freeing to know that all we have is our mortgage and hope never to take on other debt again.

  • AvgJoeMoney

    I remember when my debt was so great that I couldn’t think long term. I felt like a caged animal, that whenever someone waved a cheap dollar in front of me I’d have to respond. Even then I knew that short term thinking was totally ruining the long term….but what could you do? Luckily, I worked my butt off at crappy jobs and climbed out of the hole.

  • Psychologically debt can hurt many people, I’ve seen it with friends of ours who just give up. They don’t care any more so they just continue believing life will be pay to pay and they will die in a load of debt. Even though we no longer have any debt but the mortgage which are paying in full soon it was that debt alone that made us feel prisoner to the banks. We didn’t want that over our heads. It really had a grip on decision making in our lives. Even though it’s considered what you say a “good debt” for us it was best to rid of it, and fast. Great post and I hope many people join the Debt Movement!

  • Kim

    I think the mental weight of debt is a force to be reckoned with. It kept me in a bad place for many years. I can appreciate the feeling of being free of consumer debt now, and can’t wait until the other debts are gone as well. I might just float away!

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  • Laurie

    Thanks for writing on such an important aspect of what debt does to people. We struggled under the psychological burdens of debt for years, but now, simply having a plan in place and sticking to it has helped tremendously, even though our numbers haven’t changed much yet. Great post!

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