Why debt is causing stress and anxiety — and how to cope

5 minute read

Financial worries can be a significant source of stress for many people and subsequently take a toll on mental health.

A 2022 survey showed that 72 percent of respondents report feeling stressed about money.1 This money-related anxiety has been an issue for a while, with data from 2018 showing that 60 percent of adults between the ages of 21 and 62 say even thinking about their personal finances induces anxiety.

However, current economic conditions, such as rising interest rates, exacerbate these concerns, especially for people carrying debt. This financial worry may be particularly acute for young people, who have never known such significant inflation: the inflation rate grew at 8.2% in September 2022 — a high not seen since 1982.3

One good first step to mitigate this money-related stress is to understand why current economic conditions are placing such strain on people carrying debt. With this knowledge, you can examine your financial habits and plan how to handle your budgeting amid the volatile economy.  

Why current economic conditions can cause strain

Understanding the drivers of stress in an uncertain economy can help you make sense of your stress and help you understand options to mitigate the impacts.

Debt may be more expensive

For many people, carrying credit card balances and paying interest causes anxiety and stress.

Although more people paid down their credit card debt during the pandemic, only some have been able to eliminate their balances. Some research shows half of cardholders still carry debt from one statement to the next.

While holding credit card debt is stressful at any point in time, current economic conditions may be exacerbating this pressure for some people. That's because carrying a credit card balance may be more expensive now that interest rates have risen, making it more difficult to pay down debt.5 Plus, rising interest rates are affecting people who hold student loans and auto loans, too, and research shows people carrying this type of debt are also experiencing mental health challenges.6 

Additionally, at the same time, the future of some of this debt is uncertain. Many people are feeling uncertainty around plans to forgive some or all federal student loans as well, which can create anxiety for those who qualify but may not be able to take part in the program due to external circumstances.7 

Inflation takes a bite out of budgeting

Although showing signs of slowing, inflation has had a dragging effect on most peoples’ finances. Consumer staples, such as groceries and clothes, were hit particularly hard by inflation. This meant spending more on the same goods you need for everyday life, which can be a jarring experience. The fact that inflation rates rose as quickly — and as sharply — as they have has also been hard to process for many people.

It’s challenging to set and stick to a budget when inflation takes a bite out of what you can buy and changes the plans you've made around spending in the past. This has meant that some people have had to cut back in discretionary categories, or put off large purchases. 

Can make milestones harder to reach

Financial challenges can make it harder to reach major milestones, with retirement being, perhaps, the biggest. Seniors may work longer than they anticipated before markets began to fluctuate. Some data shows a quarter of would-be retirees are putting off the end of their working years, mostly to account for savings setbacks in the wake of higher prices.8

Economic uncertainty, and the stress it causes, isn’t just affecting would-be retirees. If you’re like 81% of adults with student loan debt, you may also find yourself delaying major life events.9 This might mean putting off a wedding, waiting to start a family, or having to spend a few additional years saving before buying a car or home. This is particularly prevalent among younger adults, who have to sacrifice saving for spending. 

Addressing Financial Stress Head-On

Although current economic conditions can be worrying, there are proactive steps you can take to help take back control and minimize the impacts.

Learning financial literacy

Getting yourself up to speed with financial literacy concepts can be a significant first step to mitigating money anxiety. Financial literacy is the ability to gain financial-management skills and understand how to use them to make positive and proactive decisions with your money.

By immersing yourself in financial education to improve your financial literacy, you can better understand how to manage your debt and protect yourself during economic fluctuations. It can also ensure that you have enough money to reach your goals, and that you are setting yourself up to pay off debt most efficiently and inexpensively as possible.

Creating emergency savings for unexpected expenses

It may be difficult to save significant amounts of money when carrying debt. However, putting aside small amounts to help build an emergency fund may be more reasonable and possible.

If you save a little each month to create this fund, it can help buffer you when you urgently need money and prevent you from taking on additional debt to address unexpected expenses.

Learning to budget

Since current economic conditions, notably inflation, mean prices are rising for essentials, dedicating time to create a budget can be very useful. Understanding where your money is going each month, and creating habits to prevent overspending, can help mitigate anxiety and stress.

If you have created a budget before, consider revisiting it with changing prices and rising interest rates in mind. If this is your first time creating a budget, now can be a good time to dive into your spending and ensure you're managing where your money goes each month. 

Look for alternative solutions for debt management

It can be helpful to look into alternative sources of debt management that you may have not considered in the past.

One instance is exploring consolidating debt, which may help lower monthly payments. In some cases, too, employers may offer a student loan debt solution to help pay off student debt — if you haven't looked into your benefits, this can be a good time to do so. Talking to a financial advisor can help you explore some of these options and even uncover some you are unaware of.

So, what's next for people who hold debt?

Of course, it's impossible to forecast the future — finances or life. Regardless, when economic signals are mixed, it can be helpful to develop a solid plan. Paring back spending to maintain savings levels, creating a budget, learning to be savvier with your money, or prioritizing paying off debt, can provide you a good start. That alone may help ease financial worries.


1. https://www.apa.org/news/press/releases/stress/2022/october-2022-topline-data.pdf

2, 6 https://gflec.org/wp-content/uploads/2021/04/Anxiety-and-Stress-Report-GFLEC-FINRA-FINAL.pdf?x85507=

3. https://www.experian.com/blogs/ask-experian/consumer-credit-review/#s4

4. https://www.npr.org/2023/01/11/1148122555/credit-card-debt-inflation-interest-rate-payments-federal-reserve

5. https://money.usnews.com/credit-cards/articles/what-rising-interest-rates-mean-for-your-credit-cards

7. https://www.forbes.com/sites/adamminsky/2023/04/06/another-student-loan-forgiveness-challenge-heads-to-supreme-court---key-updates/?sh=16924a6145be

8, 9. https://www.cnbc.com/2022/05/31/25percent-of-americans-are-delaying-retirement-due-to-inflation.html

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