According to a study by Ohio State academics, people are more stressed about high-interest credit card debt than first mortgages and credit lines.
The researchers presented a straightforward example to demonstrate the severity of credit card stress.
- $640 charged to a credit card causes just as much stress as $10,000 added to a mortgage.
- Credit card debt is more distressing than a mortgage since an asset does not secure it, and the balances on high-rate cards quickly rise when they are not paid off.
Why is credit card debt more stressful than other debts?
Here are a few more reasons why credit card debt is more stressful than other types of debt.
It takes a lot of work to escape credit card debt.
It's difficult to escape credit card debt, and it's more distressing than other types of debt. You might use credit cards again after paying them off. You will receive debt collection letters, calls, and threats.
There are two methods for getting out of credit card debt.
- One option is to pay off your credit card debt for less than half of what you owe, and your credit report will reflect the lower payment you made.
- The second choice is to budget a certain sum of money each month to make extra payments on your credit card.
Although you shouldn't use the card until it has been fully paid off, you can still access your account. Choosing this route might reflect positively on your credit report.
Credit cards have higher interest rates than other debts
Credit card debt is often challenging to handle because its interest rates are higher than those of different types of debt. Your finances will also suffer if you have high-interest debt like credit card debt. The most important rule to remember when formulating a long-term debt management plan is: Which will cost you more over time?
Small amounts you spend with credit cards easily add up to big lumps to pay
Andrei Vasilescu, Co-Founder & CEO at DontPayFull, said,
“The stress often comes from spending small amounts that add up to big lumps of money. The more you spend, the higher your payments get. Not all cards are made equal, and interest rates vary depending on a few factors, such as credit score.
If you cannot make the payments due to job loss or a change in circumstances, the best action is to call the company immediately. Many of them work with the consumer to lower their monthly payments.
This isn't a guaranteed outcome, but it does happen often. Your last solution would be to file for bankruptcy. It's important to consider all options before this as this can affect your financial status for years to come and your credit standing.”
Credit card companies employ aggressive collection tactics
Lorien Strydom, Executive Country Manager, Financer.com, said, “credit card debt is notoriously difficult to escape. Not only are the interest rates high, but credit card companies also have a reputation for aggressive collection tactics. If you're already struggling to make ends meet, the last thing you need is to be constantly harassed by phone calls and threatening letters. The stress of credit card debt can quickly become overwhelming and can even increase health risk factors. In addition, constant financial anxiety can take a toll on your personal relationships.”
Is credit card debt more stressful than student loan debt?
Anytime Estimate has just released a study showing that 46% of Americans now have credit card debt, with an average balance of $6,093.
- The study also said that 66% of U.S. credit card holders who don't have credit card debt "could soon fall behind on card payments."
- So, it's not surprising that Americans say that credit card debt is the most stressful type of debt, ranking it above medical debt, student loan debt, mortgage, and other forms of debt.
- A student loan is a type of unsecured debt. Borrowers don't have to pay a huge amount on interest payments. The student loan interest rate is lower than credit cards. So it causes less financial stress.
- As long as students maintain good spending habits and make minimum payments, they can fulfill their financial obligations. Plus, the federal reserve bank often adjusts the interest rate, and that helps borrowers to make monthly payments.
- Moreover, borrowers can opt for forbearance or deferment due to family and economic issues. This helps borrowers to get out of personal debt quickly.
The study also found that 80% of people with credit card debt also have another kind of debt. This makes it hard to pay for an emergency out of pocket.
- About 33% of cardholders say they couldn't handle a $2,000 emergency without borrowing money, and 43% say they rely on their credit cards for housing, meals, and utilities.
- There's a good reason why credit cards end up causing stress for so many people.
- They make lending riskier, but lenders have an insurance policy built in to cover their own financial risk.
Because of the high-interest rate, credit card debt is far more stressful than home mortgages or auto loans. These are secured, so the bank can take your car or home if you don't pay back one of them. But a credit card is a short-term unsecured debt, so the bank can't take back the stereo system you bought with it.
- Credit card companies charge much higher interest rates on credit card loans to compensate for this higher risk.
- Mortgages and auto loans, like credit cards, have a fixed structure that can add to consumer debt risk.
- There is a clear plan that will lead to full ownership of the item financed in the end.
- The minimum payment on a credit card is set up in a way that makes it unlikely that the owner will ever pay it off, especially if they keep using it.
Which is more stressful on one's mental health: credit card debt or payday loans?
Payday loan interest rate is higher than credit cards. The average interest rate is almost 400 percent, which is unaffordable for most people. The highest interest rate can go up to 500 percent.
Many credit card companies offer repayment plans, but payday loan companies directly withdraw money from bank accounts. That is enough to impact your mental and physical health.
Undoubtedly, these loans are more stressful for mental health than credit cards. They create an undue financial strain for people, making it tough to come out of the debt hole. Many borrowers encounter mental health issues when they fail to attain financial freedom.
How does credit card debt stress affect physical health?
According to recent studies, having credit card debt as an adult might result in a loss in physical health, including stiffness and muscle soreness.
Additionally, it might result in poor mental health with high stress and anxiety levels. These health issues can complicate daily life and make it more difficult for certain people to maintain or find employment.
This could make it more difficult for a person to repay bills and fulfill other financial commitments, resulting in a debt spiral.
Credit card debt's other impacts could harm one's health. The possible inability to pay for healthcare, prescriptions, or simply budget for healthy food are just a few effects of debt.
Skipping checkups with the doctor or preventative treatment can also raise the risk of developing numerous illnesses, such as cancer, stroke, and cardiovascular disease.
How does financial stress affect mental health?
Does credit card debt cause mental illness?
Yes.
- Apart from ruining your financial health, credit card debt stress can lead to mental health problems.
- Psychological distress can lead to mental health issues like depression, low self-esteem, and anxiety.
- Depression can cause headaches, make it hard to sleep, and make it hard to concentrate. It can also lead to overeating and weight gain.
- Researchers have found that financial worry makes you feel stressed, which makes it harder to fight off mental health problems.
Other studies show that increased stress makes people less self-controlled, makes them spend more, and messes up their ongoing financial problems.
How to manage credit card debt effectively for a better mental health
Every day, I meet clients who need help managing credit card debt. They keep asking me, “what are the ways to manage credit card debt,” and “how do I manage credit card debt? What is the best way to pay off credit card debt?” For them, I have only one answer.
Explore the following debt relief programs, call 800-530-OVLG to understand their features, and then make the final decision.
Enroll in a credit card debt consolidation program
A debt consolidation program can help you repay unsecured debts with the highest interest rate if you control your spending habits.
If the new monthly payment plan has a lower interest rate than your credit cards, consolidating your debt is perfect. This can lower interest expenses, eliminate late fees, simplify payments, or accelerate the payout process.
Enroll in a credit card debt settlement program
This program is suitable for young and old adults as long as they can save extra monthly money to repay creditors with a lump sum payment. It helps you save on interest charges, late fees, and outstanding balances.
Enroll in a credit card debt management program
Debt management plans (DMP) combine numerous debt payments into a single one each month with a lower interest rate. It works best for people who have difficulty making ends meet due to credit card debt but are ineligible for other options because of a low credit score.
DMP doesn't impact your credit score, in contrast to certain alternatives for credit card consolidation. Bankruptcy can be a better choice if debt exceeds 40% of consumers' income levels and cannot be paid off within five years.
A nonprofit credit counseling agency can help you find a debt management strategy. They will offer financial counseling and a budget plan to repay your personal loans.
What is one effective strategy for managing credit card debt?
One effective strategy for managing credit card debt and improving your financial situation is to make extra payments.
- Paying more than the minimum each month will help you pay off your debt and reduce your interest costs.
- The secret to paying off your debt more quickly is constantly making extra payments.
- Some lenders permit you to make an additional payment each month with the condition that it be applied to the principal.
- Check the terms of your loan before you start to see if there are any additional costs or prepayment penalties.
- After you pay your monthly bills, put any extra cash toward your credit card bill and add "micropayments" to your list of ways to pay.
- People often think you can only pay your credit card company once a month and that you can pay as many times as you want.
- For example, instead of going out to dinner and a movie that night and spending $75, you could order pizza and watch a movie at home and save $50.
- Take that $50 and pay $50 off your credit card balance immediately. Small payments can help you slowly chuck off your credit card balances.
Is there any other strategy to clear unsecured debts with high-interest rates?
You can also borrow money from a close friend or family member to repay your credit card debt. Paying interest is a waste of money. If you're paying hundred dollars a month just in interest, it can feel like you'll never get ahead.
So, if you're planning on paying off credit card debt, you might as well do it with the lowest interest rate possible.
If you have money in investments that you can easily access, you should use it to repay your credit card debt. The amount your money could grow on the stock market might be less than the interest you pay.
Conclusion
A credit card can be handy, but only if utilized responsibly. The urge to overspend is one of the reasons why customers are not making the most of their credit cards and getting into debt.
Some people spend more when they use their credit cards, and the more they overspend, the more debt they accrue. Setting a spending limit is the greatest approach to paying off your credit card debt because going over it negatively impacts your credit score.
