Expert Commentary

Exploring links between credit card debt and mental health as COVID recession wears on

More Americans are using credit card debt to cover everyday expenses, like rent. These five studies explore the links between debt and stress.

credit card debt
(Steve Buissinne / Pixabay)

Credit card debt fell dramatically during the early months of the COVID-19 shutdowns because of declines in U.S. consumer spending, the Federal Reserve Bank of New York reported in August.

But as the country’s economic lockdown began to strain personal finances during the summer, at times there were 70% more people using credit cards to pay rent compared with last year, an analysis from the Federal Reserve Bank of Philadelphia shows. In September, a Money survey of 2,200 U.S. adults found that personal debt was down overall but more Americans were stressed about credit card debt than any other type of debt.

On Sept. 4, the Centers for Disease Control and Prevention put into effect a moratorium on residential evictions. With that no-eviction order set to expire Dec. 31, a confluence of financial hardship could be coming in 2021 for many Americans. Those who have fallen behind stand to either lose basic necessities, like housing and running water, or else rack up interest and fees on their credit cards to make rent.

There’s a host of research showing how unpaid credit card debt, rolling over month after month, is linked to stress and other negative mental health outcomes. Below we highlight five such studies that explore how different types of credit affect consumers’ general stress, anxiety and depression.

There are some mixed findings on how much of a stressor credit card debt is compared with other debt, like student loans. Overall, though, people with high credit card debt tend to experience higher stress levels.

The big upshot across the findings is that unsecured debt, such as debt from credit cards or medical bills, generally is much more likely to be associated with anxiety than secured debt, like mortgages — which are often not thought of as debts at all, but rather investments. The authors of one of the papers featured here offer that “because mortgage holders face their mortgage payments while living in their homes, people may be less likely to mentally label their mortgages as debt.”

Secured loans require collateral. In the case of a home mortgage, the home itself is the collateral — if the mortgage holder defaults on their payments, the lender can reclaim possession of the home. Unsecured loans don’t require a physical item as collateral. Credit cards don’t require a physical thing of value as collateral if a consumer defaults.

Learn more below about the relationship between credit card debt and other unsecured loans and mental health, with particular insights for both older and younger borrowers.

The Role of Consumer and Mortgage Debt for Financial Stress
Cäzilia Loibl, Stephanie Moulton, Donald Haurin and Chrisse Edmunds. Aging & Mental Health, November 2020.

The authors focus on the financial stress of U.S. adults over age 62. They note past research that finds certain debt — payday loans, credit card debt, informal loans and other types — can produce higher levels of financial stress than, say, a home mortgage. The authors use data collected as part of the Health and Retirement Study to explore the types of debt that cause financial stress in older Americans.

The Health and Retirement Study is a longitudinal panel study, meaning it asks the same people the same questions over time. The University of Michigan administers the study, comprising about 20,000 participants in the U.S. over age 50. The study includes homeowners and renters, and asks two questions about financial stress — one on difficulty paying monthly bills and the other on whether participants feel upset about ongoing financial problems.

The authors analyze results from several survey waves the Michigan researchers conducted from 2004 to 2016. Their final sample is roughly 10,000 people age 62 or older, with an average age of 74.

About one quarter of the sample reported trouble paying bills and 36% reported feeling upset about their financial situation. Households, on average, consisted of two people with a net worth of about $300,000, an average home value of about $164,000, and yearly income of $48,000.

Most people in the sample were white; 12% were Black and 7% were Hispanic. Almost all had health insurance. Other races and ethnicities were not reported.

The strongest predictor of financial strain? Credit card debt. Within their sample, the authors associate each $10,000 in credit card debt with 65% higher odds those older Americans would report trouble paying monthly bills and almost double the chances they’d report ongoing financial-related stress.

“The results of our analyses suggest to researchers and policymakers a need for conceptualizing debt in retirement in more nuanced ways,” the authors write. “It is common in the health literature to measure net worth or total monthly debt divided by income as a single construct, which misses the differential stress contributed by housing debt relative to other forms of debt.”

Consumer Debt and Satisfaction in Life
Adam Eric Greenberg and Cassie Mogilner. Journal of Experimental Psychology: Applied, December 2020.

The authors begin with written interviews with 98 people who have home mortgages, student loans and credit card debt. Participants had yearly incomes ranging from $15,000 to $150,000 and above, with an average income of about $86,500. The authors asked participants for a paragraph describing their various debts. They find that some people did not think of their mortgages as debt, but rather a means toward home ownership. Student loans, by contrast, were much more likely to be viewed as debt.

To further explore those initial findings, the authors analyzed responses across seven other surveys with a total of roughly 8,000 participants on how types of debt affect consumers’ satisfaction with their lives. Roughly half of participants took part in a nationally representative survey of older adults — average age was 56 — conducted from 2004 to 2006 by researchers at the University of Wisconsin-Madison.

The authors recruited the remaining participants in 2016 and 2017, mostly from Amazon’s Mechanical Turk, an online crowdsourcing marketplace many academics use to find survey participants. The MTurk participants skewed younger, with an average age of between 34 and 40 years old across five surveys. For most of the surveys, participants’ average income was at or above the national average annual wage of about $53,000, though the authors controlled for income and age in part of their analysis.

They find student loans most associated with participants being dissatisfied with their lives. Home mortgages and credit card debt had an overall small link to life satisfaction, they find. Consistent with the initial open-ended study, they find that many participants did not view their mortgages as debt. One participant in the initial study noted she used to view her mortgage and student loans as investments, but her student loans morphed into “horrible debt” after she couldn’t find a job in her degree field.

“Results of seven studies reveal that the type of debt matters, in part because not all debts are equally perceived as ‘debt,’” the authors conclude. “In short, the more a debt is mentally labeled as such, the more likely holding that debt will make people less satisfied with their lives.”

American Young Adults’ Debt and Psychological Distress
Qun Zhang and Hyungsoo Kim. Journal of Family and Economic Issues, December 2018.

The authors explore how student loan and credit card debt relate to psychological distress among Americans aged 18 to 28. Student loan debt makes up the biggest share of debt among younger Americans, who carry average credit card balances of over $3,000, the authors note.

They analyzed surveys taken in 2005, 2007, 2009, 2011 and 2013 as part of the Transition into Adulthood Study, a national longitudinal panel study conducted by researchers at the University of Michigan. The authors’ sample included over 7,000 responses from participants, two-thirds of them white and a quarter Black, with an average age of about 22 years and an average annual income of about $8,700. Other races and ethnicities were not reported.

The researchers measured financial stress by asking whether participants were generally concerned with not having enough money. Based on their analysis, the authors associate each additional $1,000 in student loan debt with 6% higher odds of financial worry, and each additional $1,000 in credit card debt with a 4% higher chance of financial worry.

“Credit card debt as a short-term liability has a stronger impact on stress than student loan debt,” the authors conclude. “Actions are needed from both students and parents to prevent taking on unnecessary revolving debt.”

Credit Card Blues: The Middle Class and the Hidden Costs of Easy Credit
Randy Hodson, Rachel Dwyer and Lisa Neilson. The Sociological Quarterly, November 2016.

The authors examine unsecured debt, noting that it can provide a financial buffer during life transitions and challenges, while also adding financial risk and stress to individuals and households.

The authors analyze nearly 9,000 responses across 13 years of the National Longitudinal Survey of Youth from the U.S. Bureau of Labor Statistics, which asks about levels of unsecured debt and, in 2000, began asking about mental health. The survey follows a national representative cohort of participants who joined the survey in 1997 when they were juniors in high school. The authors split respondents into three economic classes: lower class if they’re in the bottom quarter of income earners, middle class for the middle three-quarters of earners and upper class for the top quarter of earners.

While “debt holding is specifically associated with higher levels of stress as well as overall depression,” wealthier borrowers aren’t typically psychologically affected by debt, “suggesting the use of short-term debt as a convenience strategy for the financially well-heeled,” the authors write.

They find that while lower and middle-class Americans have the lowest levels of debt in absolute terms, they are also the most likely to experience emotional distress because of that debt, particularly at higher debt levels, “consistent with the notion that debt may fill in for other sources of income leading to significant balances for middle-class borrowers.” Participants with lower incomes were found to be susceptible to anxiety, though not depression.

“What the poor need is not more credit, but perhaps better credit, and most fundamentally more income,” the authors write. “Credit will not solve long-term problems of poverty and insufficient resources and may actually aggravate those problems because of the costs of credit in terms of interest payments, fees, and penalties.”

Consumer Debt Stress, Changes in Household Debt and the Great Recession
Lucia Dunn and Ida Mirzaie. Economic Inquiry, April 2015.

The authors analyze roughly 9,000 responses from U.S. households that took part in the Consumer Finance Monthly survey from 2006 to 2012, a period that includes the Great Recession. The survey was a nationally representative, random telephone survey out of Ohio State University that included several questions about debt levels and individual feelings of stress.

At the worst of the recession — roughly mid-2009 — stress associated with debt was 50% higher than in 2006, the authors find. The average household relied on unsecured, or non-collateralized, debt over secured debt during the Great Recession. Based on their findings, the authors associate payday loans, credit card debt and student loans with higher levels of stress. Consistent with other findings featured here, mortgages are least associated with stress.

“Among the characteristics of the different debt types, one salient identifiable feature that distinguishes debt types associated with higher stress from debt types with lower stress is whether or not the debts are collateralized,” the authors conclude.

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