The impact of debt extends far beyond principal and interest rates. Beneath the surface lie hidden costs that can catch you off guard, affecting your wallet and overall well-being in ways you might not anticipate.
“I recently had a client who was paralyzed by her debts,” says Cathy Plowman, a credit counsellor at Credit Canada. “She had anxiety and a learning disability, which prevented her from reaching out for help sooner. Even though her debt was about $4,000, she felt her debt was insurmountable with her disability income, contributing further to her anxiety.”
And she’s not alone. For Tembeka Pratt, founder of Rich Her, a personal finance consulting firm, the mere thought of accumulating more debt has overwhelmed her.
Major life changes have brought a wave of emotions, including shame, anxiety, and a sense of losing control over her finances.
The Impact On Your Mental Health
When you're overwhelmed, your ability to think clearly and make sound financial decisions can be compromised. For some, this might lead to impulsive spending or neglecting bills.
Emotional spending often starts with seeking a quick fix for feeling better, leading to a cycle of regret and sometimes that can result in even more spending. That’s why it's also important to address emotional spending triggers so you can set boundaries with yourself and others.
People who feel overwhelmed might avoid facing their financial situation altogether, allowing small financial issues to snowball into larger problems.
The strain that financial stress puts on relationships is often overlooked. Money-related tensions can lead to conflicts that not only affect your emotional well-being but also complicate your financial situation, especially if they escalate to the point of separation or divorce.
The stress can also trigger or worsen anxiety and depression and affect cognitive function, impairing the ability to concentrate, make decisions, and remember important information. The relentless concern about your finances can even lead to social withdrawal, substance abuse, and, in serious cases, suicide ideation (if you or someone you know is thinking about suicide, call or text 988).
The Physical Strain
When you owe someone money, it doesn't just weigh on your mind; it can take a physical toll, too. The stress can lead to insomnia, high blood pressure, unhealthy habits, and chronic pain like muscle tension, headaches, and back pain. These health issues might result in medical expenses or reduced productivity, further straining your finances.
If debt leads to burnout or stress, it might affect your ability to work effectively or seek better opportunities, potentially leading to reduced income.
Practical Ways to Cope with Debt
The cycle of debt and its effects can feel never-ending, creating a sense of hopelessness that’s hard to shake. However, recognizing the toll it takes on your life is the first step toward breaking free.
The most important thing to remember is if your debt feels unmanageable, consider seeking help from a professional such as a non-profit credit counselling service. They can provide personalized advice and help you create a personalized debt relief plan. Also, contact your creditors if you're struggling to make payments. Sometimes they’re willing to work with you to create a payment plan or reduce interest rates. Open communication can prevent your situation from getting worse.
Uncovering Your Financial Behaviour
Understanding your money personality can help you recognize your strengths and weaknesses in financial management and help you make more informed decisions.
"It's important for Canadians to understand that financial issues are symptoms, not the root problem,” says John Nyereka, founder of PocketBook Wellness Inc. “To address them effectively, you need to dig deeper.”
For example, gamblers often incur debt and financial stress by taking high-risk chances for potentially high returns, while super savers miss out on growth opportunities trying to avoid risk.
In both cases, their distinct money personalities can contribute to financial challenges, including debt, by either taking too much risk (leading to potential losses) or not taking enough (resulting in insufficient growth and financial insecurity).
Try a Holistic Approach
While “debt-free” is a commendable goal and a significant milestone, financial wellness also requires building savings and investing.
“You need to address saving and debt management simultaneously,” says Nyereka. “Without these, you may find yourself unprepared for emergencies, unable to take advantage of growth opportunities, and lacking adequate funds for future goals like retirement, education, or buying a home.”
By doing this, you ensure consistent savings and good financial management right from the start. It helps correct harmful financial habits and sets the stage for healthy ones.
Once your debt is paid off, you can automatically redirect the money you used for repayments to building emergency funds or meeting other needs.
Keep Your Finances Organized
Start by listing all your debts, including their interest rates and minimum payments. Choose a repayment strategy that suits you, whether it's focusing on high-interest debt first or tackling smaller balances.
This also involves outlining your income and expenses and identifying areas to cut back.
"Before my current situation, I used to advise others that they had two choices: earn more money or reduce expenses—it's that straightforward,” says Pratt. “Now facing it myself, I've had to tell myself the same. I started with cutting back because it's easier right now—I'm staying home more, so I've reduced spending on things like frequent hair and nail appointments, and shopping trips to the mall."
But it’s not always that simple especially when you’re already living paycheque to paycheque and struggling to manage household expenses.
This is where keeping your finances well-organized is crucial for making informed decisions. For instance, using a line of credit with a lower interest rate before resorting to a high-interest credit card can save you money in the long run.
Practice Sustainable Money Habits
Managing stress is crucial when dealing with debt. Some people can fall into a cycle of deprivation, setting strict rules to be financially responsible but then feeling overwhelmed and splurging later.
“I recently had a client who vowed to cut out all spending on travel, dining out, and socializing, but this extreme approach often backfires,” says Pratt. Setting realistic spending limits and finding ways to enjoy what you love without drastic cuts can lead to sustainable financial habits.
Embracing a healthier outlook on debt
Debt can feel like a heavy weight dragging you down, causing stress and anxiety. But here's the thing: debt isn't a death sentence. It doesn't mean you've failed. If we change how we think about debt, we can tackle it better and feel more confident about our financial future.
Instead of seeing debt as an impossible mountain, try to view it as a temporary hurdle. This shift in mindset can help you feel more in control and ready to make smart choices to tackle it.
