Digging your head in the sand won’t get rid of debt
The strategies and financial rewards of dealing to multiple debts are well-known although there is debate over the best way to do it.
One on hand some support snowballing – paying off the small debts first to give yourself the encouragement needed to stick to the task of then knocking off the big ones.
Others support debt-stacking – channelling all available money at the highest-interest debts until they are gone, making minimum repayments on the rest, before moving on to the next highestinterest debt.
What is less focused on are the psychological rewards of getting out of debt. There is a direct link between mental wellbeing and debt, especially problem debt.
You may not always like your boss, but you get to go home at the end of the day and toss around a ball with the kids, have a glass of wine with your significant other and work on that novel which will one day make you famous. By contrast, you might not like problem debt but it’s still there when you go home. That can be stressful.
In the short term, stress can bring out the best in people. It can be a motivator and get the adrenaline pumping. Long-term it’s far less positive. It is associated not only with mental illnesses like depression, but somatic disorders like poor sleep, heart disease and other forms of poor health.
It can make us angry, unresponsive, guilt-ridden and change our own positive perception of ourselves. It can also lead people to take a not-give-a-damn attitude and to some of the addictive habits which ironically just make it even less likely that the debt will be tackled.
A bunch of negatives, I know, but there is a positive in all this, namely, there are some pretty big pyschological gains to be had from getting out of debt.
Not all debt is a problem or is necessarily stressful to have.
The Dublin office of global accountancy firm Grant Thornton, a specialist in problem debt (which Ireland has a lot of experience of), sees ‘‘debt’’ as distinct from ‘‘credit’’.
While credit is ‘‘ money that is agreed, under control, repaid regularly and used to benefit’’ (such as your mortgage), debt is ‘‘money that has not been paid and should have been but can be with more or less difficulty’’.
Grant Thornton noted the link between debt and mental and physical health, but also the prospect of improved mental and physical health for people getting on top of their debts.
A return of lost energy and focus may result, and that may make it easier to stay fit and at a reasonable weight.
Being debt-free brings freedom and freedom carries an increased sense of self and dignity.
No-one has a call on your income, bringing added security.
Paying it off can be a moment that draws a line under past behaviours – reckless youth, a failed venture, a divorce.
All of these things will reshape your sense of self.
Last word to Grant Thornton. If you do have debt (as opposed to ‘‘credit’’), its advice is: Don’t bury you head in the sand, seek help from budget advisers, research online, ditch worry (it only makes things worse), be honest about your situation not embarrassed, listen and share your problem, and recognise there is hope, so be positive and focus on the future not the mistakes of the past.