How debt affects your personal wellbeing

Debt can be a necessary part of life. Most people need a home loan to buy a house, and many businesses need to borrow money to grow.

But when your debt gets bigger than you’re comfortable with, or you’re struggling to keep up, it can start to shift from being a tool that helps you get ahead to something that is a bit of a burden.

And it turns out that having too much debt can have a big impact on your overall wellbeing.

What’s the problem?

Being worried about money, including debt, is really common. Research from the Commission for Financial Capability found that almost 70% of New Zealanders had money concerns. Almost 50% said they were stressed. Some were making unhealthy eating choices and not accessing health services because of their concerns, including about their ability to cover their debt. Also, according to a study by the Royal College of Psychiatrists, half of adults who had a debt problem suffered mental ill health, ranging from anxiety to a diagnosed mental illness.

How much is too much?

The level of debt that feels manageable will vary from person to person and depend on things like income, commitments, and personal risk tolerance.

It can also have a compounding effect, because if you’re struggling to keep on top of your debt now, you’re probably not saving as much as you should for retirement, or your other investments, putting you in a challenging position later on.

What can you do?

The Ministry of Business, Innovation and Employment offers some help to people who are feeling overwhelmed by debt. It quotes Tom Hartmann here, from Sorted, advising that a good way to turn the situation around is to look for a small thing that you can control, and work from there.

It can be easy to think the problem is too big to do anything about, and so not want to start, but looking for small wins can be a good way in.

“You might not be able to make it all better at once, but you can look for one thing that’s within your control, focus on that, then move on to the next thing,” Hartmann said. “It might be small – saving a few dollars, making a phone call, or finding a useful website or calculator.”

Once you’ve cleared your debt, focusing on developing an emergency fund can also make a big difference to your wellbeing. Research has shown that people with an emergency fund to help the household stay afloat rate their wellbeing significantly more highly.