Does Debt Cause Brain Damage?

Actually, the headline on this column probably should be, “How Much Brain Damage Does Debt Cause?”

The Atlantic magazine recently ran a story called How Income Affects the Brain. In it, reporter Olga Khazan compares a new study to one conducted in 2013, and she concludes…

This line of research suggests that being poor (or at least not rich) might be at least in part a self-perpetuating cycle. The people who are less wealthy struggle to cover their expenses. They get stressed, remember worse, and thus perform worse at the very same cognitive tasks that tend to increase wealth in today’s information economy.

I’m a CPA, not a scientist, but I’m not at all surprised by these results. For two decades, I’ve counseled Americans who have fallen deeply into debt. I’ve seen how debt has altered their thinking, and not simply from the stress of worrying how they’ll make ends meet.

I’ve also made observations not cited in either of the two research projects Khazan mentions. Namely…

Short-term debt equals short-term thinking

Because those who are struggling with debt tend to think only about how to meet next month’s bills, that time horizon begins to spread to other facets of their lives. The obvious ways include not even thinking about their retirement because they have no money now, so why contemplate your golden years without any money?

Yet it manifests in other ways, too. I’ve seen parents not even consider their children’s future, because they don’t want to confront the finances of it. The postpone their own medical care because they’d go even deeper into debt.

All that short-term thinking leads them to live short-term. They don’t consider the future to be a happy place, so they live for now — even if it means sacrificing that future. They overeat. They drink too much. They don’t exercise. Their finances have affected their outlook on their health. Debt is literally killing them.

Debt causes depression

I’m not a scientist nor a doctor, so I’m not qualified to say debt causes clinical depression. I do believe, however, debt can depress anyone, and if you suffer from mental illness, debt can aggravate it.

While I can’t diagnose medical conditions, I can say this: The “debt depression” I’ve witnessed is insidious. It paralyzes people. I’ve seen certified credit counselors offer them proven methods to get out of debt, and they’re simply defeated: “Why bother? It won’t matter.”

What depresses me is that many of these people qualify for debt management programs that can cut their monthly credit card payments by up to 30 or even 50 percent. These programs have been around for decades, and they’ve helped literally millions of Americans. Sadly, showing debt-depressed people the numbers doesn’t always compel them to take action.

Is financial freedom also mental illness freedom?

The flip side of “debt depression” is financial freedom. I’ve seen the profound effects it has on the mental well-being of clients who finally conquered their debts. They’re not only happier the moment they’ve rid themselves of that black cloud, but the feeling often persists for years.

Why? Because once they’re out of debt, many create a budgeting plan. They take control of their finances in a way they didn’t before, and with that control comes confidence — and not just with money. They shed many thousands in debt and came out better for it, so they can defeat any challenge that’s less daunting.

So it can be for you. If debt is depressing you, don’t let it linger so long that it might, as The Atlantic reported, change your brain chemistry. It’s as easy as a phone call to a certified credit counselor.