Debt impact on mental health: How to rebuild your finances

Steps to take to help boost your financial and overall mental health



Madison Blancaflor
Content writer
Specializes in in-depth guides and resource content for readers



Mental Health and Debt: How to Rebuild Your Finances


People often talk about how debt negatively affects your financial health, but what about your mental health?

A recent study published by the Journal of Consumer Research took an in-depth look at how financial health affects your overall health and well-being. The study found that “perceived financial well-being is a key predictor of overall well-being.”

The correlation between debt and mental health

The likelihood of having a mental health issue is three times higher among those who are in debt.

So why does debt negatively affect our mental health?

“As a society, we don’t typically speak kindly of people in debt,” explains Mackenzi Kingdon, a licensed mental health counselor. “A lot of labels swirl around about people with debt: failure, immature, impulsive ... the list goes on.”

Mackenzi says that it’s easy for a person in debt to internalize those feelings, creating a part of their overall identity based upon these self-imposed labels. “I’m in debt” translates into “I’m a total failure” in many people’s minds. These negative self-assessments can make it harder for you to take action to eliminate debt and can lead to mental health issues such as depression and anxiety.

A vicious cycle: Mental illnesses also contribute to financial stress

To make matters worse, studies show that people who struggle with existing mental illnesses such as depression, anxiety or even addiction are more likely to struggle with debt. Considering one in five adults have a mental health condition, this can contribute to a vicious cycle.

Someone already struggling with depression or anxiety can be more likely to go into debt. Depression and anxiety can make it harder for them to take action to eliminate debt. The financial stress of debt can then exacerbate their pre-existing mental health condition, and then the cycle starts over again.

A recent article published by Forbes even suggests you can feel symptoms similar to PTSD caused by financial stress.

“Working with clients who have worked through financial stress, I can attest that they experience debt as a burden they feel like they can’t escape,” comments Shaun Wehle, a licensed clinical psychologist.

The financial cost of mental health conditions

Mental health conditions can lead to major financial stress for multiple reasons.

Illnesses such as depression, anxiety and addiction can make holding down a job, managing bills and other financial tasks a daunting challenge. According to the National Alliance of Mental Illness (NAMI), mental illness costs the American economy an estimated $193 billion in lost earnings every year.

There are also medication and medical costs to consider. Those who suffer from depression can easily spend hundreds of dollars each month on medications, therapy and other necessary medical treatments.

Rebuilding and managing your finances

When suffering from mental health issues such as depression and anxiety, rebuilding your finances can seem like a mountain too high to climb. While it’s a process that takes time and patience, getting out of debt and establishing financial independence can have positive effects on your mental health that make the challenge worth it.

Step one: Take care of your mind

One of the best things you can do for yourself as you start your journey to rebuild your financial health is to make sure you aren’t neglecting your mental health. This can mean getting into a habit of making time for your mental health in your daily routine, such as seeing a therapist or talking to a doctor about how to treat your symptoms. It can be difficult to address financial issues if you're depressed or anxious.

Step two: Set up a budget (and stick to it)

Budgeting is one of the single most important things you can do when trying to get a handle on your finances.

Financial experts often advise sticking to a 50-30-20 model when setting up your budget. Fifty percent of your budget should be allocated for necessities such as groceries, rent, utilities and other basic bills. Thirty percent should be dedicated to expenses such as nights out with friends, weekends away, clothes shopping and other “wants.” This category is often overlooked when budgeting, but spending time with friends and family, taking time away and occasional pampering are all good for your mental health. The final 20 percent of your budget should be set aside for financial goals: getting out of debt, setting up a retirement fund or putting money away in an emergency fund.

It’s important to craft your budget to your lifestyle and what works best for you. A budget does no good if it’s not feasible for you to stick with month after month.

Step three: Rebuild your credit score

If you’ve been struggling with debt, your credit score may have been damaged. A lower credit score means higher interest rates and less favorable terms on future lines of credit. It can also affect your approval for a new apartment, mortgage or small business loan.

Here are habits you can establish to help improve your credit score:

  • Pay your bills on time and send in more than the minimum payment whenever possible. Automating payments can help take the hassle out of juggling multiple due dates.
  • Minimize your debt. A strong budget can help you get a handle on your debt, so make sure you’re dedicating time to create a manageable budget that prioritizes getting out of debt.
  • Become an authorized user. If a family member or friend who has good credit is willing to add you as an authorized user to one of his long-standing credit card accounts, it could help you improve your credit score. The activity of that account will appear on your credit reports once added. And you don't even need to use the card for that to happen. If you do use an authorized user card account, make sure you are able to pay back what you spend on their card each month.

Step four: Establish an emergency fund

Once your debts are under control, you should begin funneling money into an account you can use for emergency purchases. Having a cushion for when emergencies pop up can help eliminate some of the anxiety that financial emergencies tend to cause as well as prevent you from going back into debt to cover them.

How to afford treatment

If struggling with mental health issues, you need and deserve medical treatment options to help you get better. However, adding medical expenses on top of existing debt can be a non-starter for many people.

It may seem as if the odds are stacked against you, but there are so many organizations and resources out there dedicated to help.  

National Alliance on Mental Illness (NAMI)

NAMI has small groups across the nation dedicated to helping anyone with a mental illness. Find a local branch and they can help identify local, low-cost treatment options.

Mental Health America (MHA)

Similar to NAMI, Mental Health America can also provide local services through one of their MHA affiliates.

Local universities

Many universities with graduate training programs in psychology, psychiatry or counseling will provide low-cost mental health services to the community.

Group therapy

Group therapy sessions are often cheaper than private sessions. It can be scary to share your struggles with a group, but it can also help when you know that you’re not alone.

Sliding fees

Some providers offer sliding fee structures to help patients pay what they can afford for mental health services. Many therapists are willing to work with you to make sure you’re getting the help you need at a price that isn’t causing you more financial stress.

Medicaid and Medicare

If you are in a low-income bracket, you may be eligible for Medicaid (for those under 65) or Medicare (for those 65 years or older). Medicaid coverage includes mental health services and some plans also include prescription drug coverage. Medicare covers hospital and medical insurance and prescription drug coverage.

Zero interest credit cards

While using a credit card for large purchases that you can’t immediately pay off (such as medical expenses) is usually counter-intuitive to getting out of debt, a zero-interest credit card can allow you to pay off large medical purchases without interest charges for a given period of time, usually referred to as an "introductory APR period." For someone who has no other way to pay for mental health services, the risk is worth getting treatment and jumpstarting your journey to being healthy. Generally, your credit rating has to be in the good to excellent range to qualify.

Just be sure you can pay off the balance before your 0 percent APR introductory period ends, or the interest rates can make it more difficult to pay off the card balance.

If you or your loved one is experiencing a time of crisis, know that you can call the NAMI helpline at 800-950-6264 or text NAMI to 741741.