Debt Psychology: A Brief Overview

Over the course of many years, prominent psychologists have observed patterns in spending behaviour and from these observations, they have developed a number of theories, which can help us understand debt psychology better. Taking a brief look through those theories should provide a concise idea regarding the psychology of debt and debt management.

The connection between Poor Mental Health and Debt Management

There is a clear connection between mental health issues and poor debt management, although they are not mutually inclusive by any means. Some of the established and theorised relationships between the two are as follows.

• People with psychiatric disorders are often not rooted in reality enough to know the implications of poor debt management
• They are more likely to take impulsive financial decisions
• Their disorders make them less capable of holding down jobs or pursuing a proper career path
• Depression is often linked to forgetting about payment dates, amounts, schedules, etc.
• OCD is linked to overspending in search of closure than can never come from it
• Depression and shopping sprees are interlinked, frequently landing people in credit card debt
• Loneliness leads to depression, which leads to overspending in a futile attempt to fill the gap
• Delusional disorders such as schizophrenia can lead people into believing they have more money than they actually do

Patterns and Behaviours that Help in Identifying a Responsible Borrower

Being in debt is not always optional, which is why psychiatric disorders and bad debt management are not mutually inclusive, of course. However, in most cases, psychologists working closely with financial institutions have noted a number of the following behavioural patterns in responsible borrowers.

• A section of them will only borrow what they must, in order to make ends meet
• Others will keep loans reserved for emergencies, car loans, and mortgages only
• Healthy individuals have a clear financial plan and budget, which they won’t exceed under any circumstances
• Almost all responsible borrowers will only borrow an amount that they can pay back in time
• Under most circumstances, their credit scores will reflect their positive mental conditions

Understanding the Rule of Exception

Emergencies, a broken-down car, or any other kind of unplanned expense can put even the soundest mind in debt. In such situations, a person’s mental health has little or nothing to do with the debt they might incur.

However, as it is a slippery slope to take loans bigger than one is used to, financial experts suggest keeping the following in mind.

• Keep both the term and the loan amount as low as possible
• On taking out payday loans, ensure that all details (interest amount, net payable, penalties, etc.) about it are transparent
• Sacrifice some comforts for paying back the loan first, to avoid incurring absurd interest rates

Incurring debt is not always under our control for obvious reasons, but the connections between proper debt management and sound mental health are clear all the same. It’s not just about debt though, but management itself that is often an issue for mental health patients. They are often in more need of more financial and psychological guidance than others.