How Financial Distress, Debt, Or A Financial Crisis Can Affect Mental Health

For many, financial concerns rank among the top stressors in their daily life. In one survey, 65% of American participants reported finances as their most significant source of stress. In that same survey, 95% said they “sacrifice their mental health to get by financially” and experience physical concerns such as lack of sleep and headaches due to money worries. So how and why is money stress linked so closely with mental stress? Here, we’ll explain the types of financial stressors faced by many, the ways they can impact mental health, and how receiving support in both areas can be helpful.

Debt, cash flow problems, and money management issues: signs of financial distress

Financial stress or distress may look different from one person to the next depending on various factors. In general, however, it’s a state in which an individual is struggling to meet their financial obligations and afford daily necessities. 

Signs may begin subtly but can intensify into more severe debt and cash flow problems. For example, ignoring bills or bank balances due to fear or anxiety might be an early sign. Poor budgeting, living beyond one’s means, high fixed costs, and accumulating little or no savings can also signal financial distress. Systemic reasons for economic instability are often at play, and individual decisions—whcih could be tied to social pressures, mental health challenges, or other concerns—may exacerbate the situation.

As poor money management progresses, individuals experiencing financial distress may begin to miss or juggle payments. They may rely on credit cards or high-interest loans to cover basic expenses, with not enough accounts receivables or income to cover them otherwise. When left unaddressed, such practices can lead to an overwhelming, full-blown debt crisis, at which point individuals may begin to lose assets or receive calls from collection agencies.

How financial health can affect mental and physical health

Research indicates that the inverse is often also true. For example, a 2019 survey from England’s Money and Mental Health Policy Institute reports that 76% of participants claimed their pre-existing mental health conditions had contributed to poor financial conditions. 

The relationship between signs of financial distress and anxiety and depression

Constant financial uncertainty and economic downturns may fuel chronic stress, worry, and emotional exhaustion—which may affect those with less financial means even more significantly. A 2024 study published in Nature suggests that participants with lower accrued financial assets, such as savings and investments, had substantially higher odds of depression, anxiety, or both, even after controlling for reduced income. Various health experts have also recognized poverty as a form of ongoing trauma, which is another way in which finances can significantly affect mental well-being.

How a financial crisis can affect physical health

Money worries may keep you up at night, potentially resulting in poor sleep, low energy, and a reduced capacity to cope with daily demands. When financial worries lead to psychological stress, they can also trigger the release of stress hormones such as cortisol and adrenaline. 

In the short term, these hormones prepare the body for action by increasing heart rate and blood pressure. However, prolonged stress causes wear and tear on the body, potentially increasing one’s risk of health challenges such as cardiovascular diseases, weakened immune function, digestive issues, diabetes, and worsening of chronic conditions like asthma and autoimmune disorders. 

How financial stress can be linked to strain on relationships and families

Financial problems can be a significant source of conflict and increased stress in families and relationships. One study suggests that money accounts for 40% of fights between couples in long-term relationships. If left unaddressed, these arguments can cause distance and conflict—potentiailly even leading to separation or divorce. 

Tension in households experiencing financial instability can affect children, too. They may experience increased instability and uncertainty, particularly when witnessing their parents’ worry and stress. In some cases, children may also be shamed or experience bullying from peers related to their family's financial situation.

The concept of financially contingent self-worth (FCSW) 

Many people connect financial problems and self-worth, with some experiencing shame and insecurity when their economic situation is unstable. This can lead to a bi-directional situation in which financial stress erodes self-esteem, and self-esteem issues cause behaviors that lead to further financial stress. 

This connection, known by psychologists as financially contingent self-worth (FCSW), can have several adverse outcomes. People with FCSW could isolate themselves socially, make poor financial decisions, and experience reduced life satisfaction and signs of mental health conditions. 

Other signs of coping with a financial crisis in an unhealthy way

When financial strain or financial distress occurs, some people avoid addressing it. They might not open the bills or check their bank balances. They might isolate themselves from family and friends to avoid situations in which financial disparities may be apparent. Some may use food, drugs, or alcohol as a coping mechanism when they experience financial distress, potentially leading to more financial issues and health impacts. For these reasons, it can be important to seek financial advice, social support, and mental health support when experiencing a financial crisis in order to avoid worsened outcomes. 

Building financial health

It can be possible for individuals experiencing financial challenges to recover, build financial stability, and promote long-term financial health. To begin the journey, it might help to understand the indicators of financial health. Topics to consider include: 

• Spending and income. A fundamental sign of financial health is typically living within your means if at all possible, which is about aiming for your spending to not exceed your earnings or revenues (sensitive to the economy).
• Saving and investing. Preparing for your financial future can involve saving and investing, if possible. Savings accounts, an emergency fund, and retirement accounts are some examples.
• Debt and credit. Consider your debt-to-income ratio and credit score. 
• Net worth. Your net worth, calculated as liquid and illiquid assets minus liabilities, provides a snapshot of your overall financial stability and available financial cushion.

Reducing debt, handling cash flow problems, and investing wisely: practical steps toward financial health and stability

To achieve financial health and stability, it can help to establish strong money habits and commit to a long-term plan. This often involves building savings, managing debt strategically, and making your money work for you through smart investments. Here are some basic tips:

• Set financial goals, track your income and expenses, and create a reasonable budget 
• Add to your savings and an emergency fund whenever possible to create a safety net to cover minor emergencies and other obligations without accumulating new debt
• If possible, avoid accumulating new debt and prioritize making any high-interest payments on credit cards and loans whenever you can
• Work toward improving your credit score by paying your bills on time whenever you can and keeping your credit utilization low
• If possible, grow your wealth through investments and consider saving for retirement through accounts like a 401(k) or IRA

Seeking professional guidance for money management

Financial advisors, nonprofit programs, and credit counseling services may help alleviate financial burdens by offering guidance, resources, and structured debt repayment plans. 

• Corporate finance advisors offer comprehensive financial planning, including wealth management, retirement planning, and investment strategies, and they can also address immediate debt concerns. 
• Credit counseling agencies, primarily nonprofits, offer specialized advice and programs for people struggling with debt and sometimes can give advice on bankruptcy filings. 
• Many nonprofits offer financial literacy education and other resources, often at no or low cost. Community-specific nonprofit programs or mutual aid groups may also help with immediate, specific financial hardships. 

Financial difficulties and mental resilience

To build mental resilience during financial difficulties, it may be helpful to reframe your thoughts and beliefs about money and your relationship with it. Reminding yourself that you have inherent worth beyond your finances or your work productivity may help you maintain self-esteem even during financial hardships. It may be useful as well to cultivate self-compassion by remembering how common financial difficulties are. On the journey to fiscal stability, it can also help to celebrate small financial wins and focus on progress.

Self-care and healthy coping with financial stress

Self-care can help you cope with stressors in a healthy way and offer a firm foundation for long-term mental well-being. Spending time in nature, exercising as often as possible, and aiming to get enough sleep can be key. Mindfulness and deep breathing techniques can help calm your nervous system and relieve stress, as can engaging in hobbies and activities that nourish and bring you joy. Additionally, it can be nourishing to lean on your support network, if applicable. Trusted friends or family may be able to provide emotional support. 

When it may be time to reach out to a mental health professional

As mentioned above, financial stress can significantly affect mental health in various ways. If you've noticed that your financial worries have started to impact your well-being, resulting in symptoms like anxiety, chronic fatigue, trouble sleeping, difficulty concentrating, symptoms of depression, or addictive behaviors (to drugs, alcohol, food, shopping, or gambling) as a coping mechanism, it can be time to seek support.

A therapist may help you cultivate healthy ways to manage anxiety and depression related to finances. They can also guide you in exploring any potential underlying mental health challenges that may be contributing to or resulting from financial difficulties. 

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Getting support in coping with financial stress through online therapy

Often, therapists working through internet-based platforms like BetterHelp can offer therapy services in a more convenient format than traditional, in-person providers, since online therapy allows you to receive treatment virtually from home. Online therapy can also often be more affordable than in-person treatment without insurance, and BetterHelp may offer financial assistance for those who qualify. 

Although research is ongoing, several studies indicate that internet-delivered therapy—particularly online CBT (iCBT)—may be effective for reducing depression and anxiety symptoms while reducing financial barriers to treatment. One such study measured outcomes for participants in a four- to eight-week iCBT program developed in response to the link between economic difficulties and mental health challenges. The findings suggest that the participants experienced reduced symptoms of depression and anxiety as well as improvements in financial well-being.