A Guide to Coping With Debt and Financial Stress

According to an AICPA-commissioned Harris Poll study of 1,004 U.S. adults, 56% of Americans reported that their debt has negatively affected their lives. The survey also found that 28% of debtors stated their debt caused stress in everyday financial decisions; 21% said it had caused conflicts with their partners; and 19% indicated that collection agencies had contacted them.

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Additionally, nearly a third (31%) of debt-burdened Americans worry about it in general, while a quarter (25%) think about it at bedtime. And, 18% admitted that they think about their debt at work.

Considering that the average American debt among consumers is $92,727, it’s also essential to understand why people are stressing over their debt. As a consequence, this can have an impact on all facets of your life. The effect can range from not being able to cover your monthly expenses to retirement planning. For example, 84% of borrowers claim that student loans have negatively affected the amount they save for retirement.

Who is Impacted By Debt Stress?

There’s a misconception that it’s only younger generations, namely Millennials and Zoomers when it comes to debt. Truth be told, worrying about money crosses all generational lines.

According to a Northwestern Mutual study, members of Generation X, the group born between 1946 and 1964, carry more debt than members of any other generation. Excluding mortgages, most Gen Xers have personal debts of $36,000.

At the same time, Millennials, the generation with the most significant number of Americans, worry about debt twice as much (33% vs. 19%) as Baby Boomers. Most Millennials (68%) said that debt negatively affected their daily lives — Boomers reported (48%) were negatively affected. While both Millennials and Boomers have debt, the rates are about equal (73% of Millennials and 74% of Boomers).

Regardless, here’s a snapshot of financial stress that each generation is experiencing;

  • Millennials. Due to rising living costs, student loan debt, and the Great Recession’s financial effects.
  • Generation X. With mortgage payments, raising children, and potentially helping parents financially, this generation has the most financial obligations.
  • Baby boomers. In 2020, 28 million baby boomers will have retired, but many of them will not be debt-free. Mortgages, car loans, credit cards, and personal loans are among the debts that baby boomers have accumulated.
  • People aged 70 and older. In the decade from 1999 to 2019, Americans over the age of 70 had a 543% increase in the debt burden. In most cases, this debt is due to credit card debt, mortgages, auto loans, and taking on extra debt to get by with living expenses.

The Dark Side of Financial Stress

Struggling financially is more than just an inconvenience. When not addressed, this struggle can lead to any of the following.

Anxiety and depression

Money can make us feel safe and secure. And, without the funds we need, we may experience vulnerability and anxiety. Furthermore, we can’t lose an income source without an effect, and when we can’t pay bills on time, it leads to common anxiety symptoms like a pounding heartbeat, sweating, or even panic attacks.

Money problems can also make us feel hopeless, have low self-esteem, and be unable to make decisions or concentrate.

According to a study conducted at the University of Nottingham in the UK — people struggling with debt are more than twice as likely to suffer from depression.

Even more worrisome is that people in debt are three times more likely to take their own lives than those who are not facing financial difficulties.

Physical ailments

Stress from debt can increase headaches, gastrointestinal problems, as well as disrupt sleep patterns. It can also cause either weight gain or loss. This type of physical stress also weakens the immune system, leading to more frequent colds. And, in the long term, this additional stress puts more wear and tear on your cardiovascular system.

Encourages unhealthy habits

Some people who suffer from mental health problems might overspend to cope with depression or anxiety. In addition to overspending, compulsive overspending can lead to guilt, depression, and debt accumulation.

An individual experiencing financial debt stress may turn to antidepressants, alcohol, illegal drugs, or gambling for relief. Unfortunately, the costs associated with these unhealthy habits lead to addiction and can also increase their debt.

Relationship problems

One of the most common arguments between couples has to do with money. When left unattended, financial stress can damage relationships and make you angry, irritable, and withdrawn. Additionally, financial hardships can prevent you from purchasing a family home, socializing with others, or retiring comfortably.

How to Cope With Financial Stress

While it can be challenging to see a silver lining when you’re in a precarious financial situation, there are practical ways to cope with your financial stress.

Don’t bury your head in the sand

“Stress acts as an accelerator: it will push you either forward or backward, but you choose which direction.”– Chelsea Erieau

Have you ever purposely neglected a problem? It could be not fixing a leaky faucet or voicing your opinion at work. So why do we do this to ourselves? Because if we don’t acknowledge the problem, it will magically disappear.

Of course, the opposite is true. By ignoring the issue, it doesn’t just go away on its own. In fact, it gets bigger and more problematic. And, this is definitely true when it comes to debt.

“Financial denial is when you stop paying attention to your finances, you don’t track them, and you don’t open your statements. Financial denial is a way to deal with stress — you feel better (about your debt) because you’re not thinking about it,” says Brad Klontz, CFP, founder of the Financial Psychology Institute, associate professor of Practice in Financial Psychology at Creighton University Heider College of Business, and a fellow of the American Psychological Association.

“The constant stress leads people into denial, and vagueness, and magical thinking,” adds psychologist, professor, author, and executive coach Moira Somers. “The sense of loss of control is big, the sense of being trapped and also this cycle of shame, guilt, and remorse.”

In short, the first step you need to take is to accept your financial situation and that there is a problem. Acknowledging an issue may be uncomfortable at first, but it’s the only way you can begin the coping process and tackle your debt once and for all.

Bonus tip

You might want to consider how much debt you owe compared to your income before you get worked up. In this case, you need to solve for your debt-to-income (DTI) ratio, which is standard metric lenders use to determine if you’d be a reliable borrower. So even if you aren’t applying for a loan, it can still be your personal debt metric.

Take the reins

Now that you’re no longer in denial, it’s time to take action. And, unfortunately, you’re most likely going to have to do most of this on your own. But, here are some pointers from the FTC to not make this seem as overwhelming;

Develop a budget

Making a realistic assessment of your income and expenses is the first step towards taking charge of your financial status. Begin by listing your income from all sources. After that, make a list of your “fixed” expenses, which are the same every month, such as mortgage or rent payments, car payments, and insurance premiums, the advise.

Following that, list out the expenses that vary – such as groceries and entertainment. You can track your spending patterns, identify necessary expenses, and prioritize the rest by jotting down all your expenses, even insignificant ones. It is essential to ensure that you can cover the basics such as housing, food, health care, and insurance.

Several resources are available online, in public libraries, and in bookstores that provide budgeting and money management information. Using free budgeting tools can help create and maintain a budget, keep your checkbook balanced, and create a savings plan and a debt repayment plan.

Contact your creditors

If you’re struggling to pay your bills, contact your creditors right away. Explain why managing your payments is difficult for you, and work out a modified payment plan that reduces your payments to a more manageable level for you. Don’t wait until debt collectors have taken over your accounts. Once they have, your creditors have pretty much given up on you.

Deal with debt collectors

A debt collector is not allowed to contact you before 8 a.m., after 9 p.m., or during your working hours if the collector knows that the employer disapproves of the calls. A debt collector cannot harass you, lie to you, or use unfair practices when trying to collect a debt. If you ask for further communication to stop, a debt collector must honor that request.

Manage your auto and home loans

You can have unsecured or secured debts. Usually, secured debt is backed by an asset, like your car for a car loan or your house for a mortgage. As such, your car could be repossessed, or your house could be foreclosed if you don’t make payments.

On the flip side, credit card debt, medical bills, and signature loans are unsecured debts, which are usually not tied to any particular asset.

If you’re unable to make payments on your vehicle or home, don’t just sit back and do nothing — consider selling the vehicle or contacting your lender ASAP. It’s not always guaranteed, but creditors may be able to work with you until you’re in a better financial situation. Or, if this isn’t an option, try to avoid additional fees, like towing or storage costs.

Contact a housing counseling agency if you and your lender cannot come to an agreement. Many agencies, however, offer free counseling to all homeowners who are having trouble making mortgage payments, including those with FHA mortgages.

If you need help finding a housing counseling agency in your area, contact the local office of the Department of Housing and Urban Development or your local housing authority.

Talk it out

While you will have to go it alone for part of the journey, you shouldn’t bottle everything up. Put aside the embarrassment you may feel and open up to someone whom you trust. Even if your friend can’t help you out, either with advice or lending you money, just talking to someone can alleviate the stress that you’re under.

Why? Well, as explained in a New York Times article, “When you are feeling very intense feelings — especially fear, aggression or anxiety — your amygdala is running the show. This region of the brain controls your fight or flight response.

A key function of the amygdala, and the limbic system in general, is to determine if anything is a threat and devise a response, if necessary, then store the information in your brain for later. “When you get stressed or overwhelmed, this part of your brain can take control and even override more logical thought processes.”

Researchers at U.C.L.A. have found that putting your feelings into words can reduce the amygdala’s reaction to upsetting events. In addition, verbalizing the situation to a friend (or even out loud to yourself) is a way you can become less stressed over a nagging issue over time.

So, if you’re buried under student loan debt, simply talking to someone else helps “put your feelings into words and process” the experience without the previous adverse reactions.

Call in the calvary

While talking to others can help put you more at ease, they may not have a solution to your financial predicament. As such, you should reach out to a financial advisor or credit counselor.

In most communities, free counseling is available to help people deal with financial problems ranging from coping with debt to creating and sticking to a budget to interacting with creditors. You can also utilize the NFCC’s free credit counseling service via their website or by calling 800-388-2227.

Don’t become a victim

As the adage goes, “desperate times call for desperate measures.” In this case, that might mean turning to predatory lending options like payday loans or title loans.

“Payday loans are loans that are given to people based on their next paycheck,” Michelle Singletary, author of What To Do With Your Money When Crisis Hits: A Survival Guide, told NPR. “Title loans use your vehicle’s title as collateral to guarantee the loan. So what happens in that situation is say you’ve got a car that’s worth $5,000 and you borrow $500, but you default on that? Now they take your $5,000 for that $500 loan.”

It’s particularly dangerous to take out title loans for two reasons. First, by annualizing the fees and calculating the interest rate, you will find that rates are ranging from 300 percent to 1000 percent. It would be absurd to borrow money at 300 percent no matter how dire your financial status is.

Two, you’re already behind if you’re in a bind right now because you’re using money from your next paycheck, adds Singletary. Now what? Studies have shown that these loans often lead to debt cycles for borrowers.

If working with a debt relief service, make sure that they’re reputable. To find out if there are any complaints against a debt relief service, you should contact your state’s Attorney General and local consumer protection agency.

What about credit counselors? Most reputable credit counseling organizations are non-profit organizations that offer in-person, online, and over the phone. “Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals,” states the FTC.

Be kind to yourself

You can feel hopeless about improving your situation if you keep telling yourself that your problems are too big or that you can’t handle them on your own.

“Our ego is our mind’s understanding of ourselves, and debt can cause us to feel unworthy,” explains Joyce Marter, a licensed psychotherapist and author of The Financial Mindset Fix: A Mental Fitness Program for an Abundant Life. “You are innately worthy and deserving of all that is good. But, unfortunately, your financial problems are how you are, not who you are.”

Breaking the cycle of negativity can be achieved by rephrasing your situation as a challenge that you’re overcoming.

“Stop the self-flagellation and self-judgment and practice acceptance of your financial situation,” says Marter. “Extend yourself the same empathy and compassion you would demonstrate to others.”

Manage your overall stress

To resolve financial problems, taking small steps, one at a time can help.  After all, it’s doubtful that you’ll escape your financial difficulties overnight. But, that’s not to say you can’t take steps right now to relieve your stress and keep a level head so you can overcome whatever hurdles will face in the future.

  • Move your body. You can improve your self-esteem and ease stress by exercising regularly — even if it’s just a short walk after lunch.
  • Eat healthily. A diet rich in fruits, vegetables, and omega-3 fatty acids can help improve moods, increase energy, and boost outlooks.
  • Get enough sleep. Sleep deprivation will result in feelings of stress and negativity. So with that in mind, it’s important for your mind and your body to not skimp on sleep.
  • Use a relaxation technique. Give yourself a break from constant worrying each day by taking some time to relax. You can relieve stress and restore some balance to your life by practicing meditation, breathing exercises, and other relaxation techniques.
  • Practice gratitude. In times of financial uncertainty and money worries, it’s easy to focus on the negatives. While you must acknowledge what’s going on, it’s equally important to consider the positives to give you a break from worrying.

Most importantly, if stress and anxiety interfere with your daily life, please get in touch with a mental health professional. It’s not a sign of weakness when you speak with a therapist. It takes a lot of courage to admit that you need help and are willing to make that happen.

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