Is debt bad for my mental health?

Debt is a problem throughout the country. According to the United States Department of Housing and Urban Development the typical American household carries an average of $145,000 in debt. This is almost a three-fold increase from 2000. Our society tends to look poorly on debt, seeing it as a burden that is due to an individual’s poor choices. But a closer look at the sources of debt calls this perception into question.

Student loan debt went up by 12%, mortgage debt increased 7% and personal loans went up by 6%. The rate of credit card debt has dropped almost 10% since 2019 — but it is important to point out that even credit card debt may not be the result of a lavish lifestyle. People often use credit cards to get a little more time to pay off medical bills, bills related to school expenses, or to help cover the cost of other necessities.

Upon review of this data, it is no surprise that debt can threaten our mental health. This can also translate to physical health concerns. Examples can include everything from digestive to cardiac issues. We can take steps to reduce this stress by seeking out peers to offer moral support and coming up with a plan to tackle that debt.

But what if a plan to tackle that debt is not enough? What if our financial burden is unmanageable?

What are the first steps towards managing debt to reduce stress?

It is generally a good idea to review your options, first. Reach out to creditors and see if you can negotiate a manageable repayment plan. See if you can settle debt at a lower interest rate or possibly for less than you owe.

When is bankruptcy the right choice?

If the above options have not helped put you on a path towards managing your financial obligations, it is reasonable to consider bankruptcy. It is important to ask yourself some questions before moving forward with bankruptcy to help determine if it is the right choice in your situation. These questions can include:

• What is my debt-to-asset ratio? Bankruptcy may be best if you owe more than you have in assets.
• What is my credit score? It is true that your credit score will take a hit if going through bankruptcy, but this reduction may be less than if you avoid bankruptcy and keep making late or no payments on current bills. This is because a failure to pay bills on time or make payments at all can continually impact your credit score, bringing it lower and lower every month. Bankruptcy can wipe out this debt and let you start over, building your credit back up by starting fresh.
• Is the stress from collection efforts too much? Collection agencies are supposed to follow certain rules, but even when they do the constant calls can be overwhelming. If approved for bankruptcy, an automatic stay goes into effect. This is a court order that essentially forbids debt collectors from making contact while you are going through the bankruptcy process. Depending on the results of the bankruptcy proceeding, the court could discharge or forgive those debts.

These questions are a good starting point when debt threatens your mental health but are only part of the conversation. Ultimately, if you have too much debt to manage, you should explore all of your available debt-relief options, such as seeking bankruptcy protection. When you schedule a free initial consultation at Kingcade Garcia McMaken, you will meet with an experienced bankruptcy attorney who will advise you of all your options.