You have probably suspected it all along but now there is evidence from professionals that unmanageable debts can contribute to our sense of well-being and even depression. The Financial Security Project at the Boston University has published research results confirming that, for every 10% increase in the dollar amount of an individual’s debt position, his or her depressive symptoms increase by 14%. It seems that this analysis applies to all forms of bad debts but excludes home loans (or good debts).
Bad Debt vs Good Debt
It is important to make a distinction here between bad debt which is lifestyle debt. Money owing on credit cards, interest free offers and personal loans as compared to money owing on home loans and investment loans. The later is viewed as helping you grow your asset portfolio and your wealth whereas the other type of debt is seen as bad debt as it does nothing to improve our long-term financial position. Debt that comes from credit cards, overdue bills and short term loans appears to contribute the most to our stress levels. This debt if left unchecked can lead to bankruptcy.
Mortgage Related Stress
This research by no way negated the stresses associated with pressures that come from ones inability to pay a mortgage. All it suggests is that most people prioritize funds to cover the mortgage first and then there is not quite enough left to cover the other debts. It is correct to place the home loan debt as first in the priority line of debt payment. Non-payment of a mortgage can cause you to lose your home as the lender can repossess your home and sell the property to cover your debts.
People who can afford to pay long-term debt are less likely to get depressed. However those whose situation is such that they can not afford to pay their mortgage will most likely also find that their psychological health is affected. In Australia today, rates of mortgage related stress are down as consequence of falling home loan interest rates. Most people are finding that they are paying less for their mortgage now than they had to 12 months earlier, and that is a good thing.
Taking Action Sooner is the Answer
No matter which debt is keeping you up mights, taking action as soon as possible is the answer. If you know that you will not be able to afford your next months mortgage payment, contact your lender and ask for a hardship arrangement for a couple of months. If the trouble is with your car loan or your credit card, it is important to be proactive and take the first step. Credit providers will be far more willing to meet you half way if you appear to be responsible and trying to get on top of a bad situation, rather than if you put your had in the sand and pretend that there is no problem.
Be the first to contact your credit providers and try to negotiate an arrangement that will help you find your way out of the current financial problems – and your stresses will melt away!