It is no secret that dealing with outstanding debt can take a toll on all of us. The responsibility of paying off debt you have accumulated often feels overwhelming and insurmountable. Add the current state of the economy to the mix, and you have yourself a recipe for stress. In this section, you will learn more about studies done to determine the psychological effects of debt. We hope that it will help you recognize that debt not only affects your credit, but more importantly, it affects your individual well-being.
Psychology of Spending
As we all strive to live the life we have imagined for ourselves, we sometimes find that the things we want lay outside of our current financial means. During a study done by Drazen Prelec at The Massachusetts Institute of Technology, researchers organized a silent auction that offered sold-out tickets to a Celtics basketball game. The researchers gave half of the participants in the study cash, and half of the participants a credit card. The results of the experiment found that participants using credit cards placed bids that were twice as much as those who were given cash to spend. Simply having access to a credit card gave people a false sense of security, driving them to place bids they may not necessarily be able to afford. The study suggests that the moral responsibility associated with using cash is eliminated when given the option to use credit. Prelec noted the following:
“The moral tax gets blurred with credit cards. When you’re consuming, you’re not thinking about the payments, and when you’re paying, you don’t know what you’re paying for.”
This “moral tax” he is alluding to is the feeling of guilt consumers have when they know they are spending outside of their means. This is what usually stops people from splurging on items they cannot afford; the use of cash or debit cards eliminates these feelings of guilt, as it is impossible to purchase things with cash you do not have at that very moment.
How Credit Cards Affect the Brain
Other studies Prelec conducted found that the mere sight of a credit card logo on a catalog, in a store window, or even on a debit card stirs up a feeling of excitement in the brain. Credit card logos have come to symbolize the ability to “buy now, pay later”—which communicates an ability to commit consequence-free actions. Many people, both consciously and sub-consciously, push away any feelings of guilt when they’re “in the moment.” They give in to their urge to obtain the item they are staring at, only to pay the psychological and financial consequences later. After the high of getting what they want wears off, they suddenly find themselves buried in debt.
Psychological and Physical Effects of Debt
When that credit card bill arrives, most people experience a feeling of guilt. As mentioned above, Prelec calls this feeling a “moral tax.” They are fully aware that they will eventually have to pay for the purchase—but when the reality of receiving the bill sets in, a variety of things can happen over time. First, the emotional reactions begin. Fear, frustration, and anxiety rush through the brain. A person begins to feel uncertain about the outcome of their future. Eventually, when under enough stress, they begin to develop feelings of apathy. Immense stress causes them to feel disconnected from society, resulting in the “I don’t care” mentality. The effects of debt are not limited to the emotional aspect; being in debt can have serious physical effects on a person. People often slip into a physical depression, unable to get out of bed or function as they normally would. Stress-related heart conditions can manifest themselves, along with sudden panic attacks. At the more extreme end, many people who are facing seemingly insurmountable debt turn to drugs and alcohol to escape the reality of their financial situation. Instead of taking proactive action, this vicious cycle of self-medicating causes their debt to pile even higher. Unfortunately, many have turned to suicide as the ultimate escape.
What You Can Do to Overcome Your Debt
Experiencing any of these psychological and physical responses does not mean you are going “crazy.” It is perfectly normal to experience anxiety when it comes to dealing with your debt. They key is to stop these feelings of anxiety from snowballing into more serious psychological and physical conditions. The best thing to do is to face your debt head-on—to hold yourself accountable for your past spending habits. As we have mentioned in previous sections, there are many debt relief help options available to the millions of consumers who find themselves in sticky financial situations. Use them—that is why they exist! Set a budget and do your best to stick to it. Be aware of the way your brain reacts when using credit cards and do your best to step back and think rationally. Many people have climbed mountains of debt by setting short-term payment goals and by curbing their spending habits. You can do it—you’re not alone!
