Beyond the finances: Understanding the true cost of debt

Debt is a hot topic, right now. With COVID-19 impacting finances at all levels, much of the conversation over the past year and a half has surrounded increased spending (or decreased revenue) among governments, businesses, and individuals — and the debt each has taken on to make up the difference.

Typically, these discussions fixate on the financial costs of carrying debt and whether borrowers can afford to repay their loans. Indeed, these are valid concerns, as anyone who has ever found themselves overburdened by debt can attest.

However, especially on an individual or household level, the financial impacts are often only the beginning. Behind the scenes, a prolonged battle with unmanageable debt can have real and measurable effects on your retirement plans, relationships, and even your mental and physical health.

Delayed retirement

People struggling to service their debts often find they can’t afford to save for emergencies much less their retirement. This challenge is especially acute for non-salaried or self-employed individuals who don’t have the benefit of employer pension plans or RRSP matching programs.

Given that most retirement plans depend on regular contributions made as early as possible to benefit from investment returns and compound interest, this can have dire consequences.

Consider a person who struggled month to month for three years to pay down an overwhelming amount of debt and was unable to contribute anything to their retirement over this period. They’re hoping to retire in 15 years and regularly contributed $350 per month to their RRSP prior to their financial difficulties.

The total financial loss (assuming the RRSP was averaging a four percent annual rate of return) is roughly $86,000 (including $23,000 in interest) or potentially two years of post-retirement salary.

This individual would face one of two choices:

• Delay retirement for two (or likely more) years to increase savings
• Reduce their annual retirement spending by $3,500 - $5,000 to ensure they won’t outlive their existing savings

Amid short term difficulties, long-term commitments are often the first to be neglected

Retirement is supposed to be a time to enjoy your life and pursue the activities and experiences you didn’t have time for during your career. Unfortunately, too many people find their golden years consumed by the stress of how they’re going to afford food, shelter, and medical care — often because they spent too much time paying down debt at the expense of the expense of their future self.

Relationship hardships

Debt can also be a serious strain on relationships and is a major cause for breakdowns and divorce. It’s all too common for couples to be on different pages when it comes to budgeting and financial priorities. There is judgement around spending, disagreements about accumulating and carrying debt, finger pointing about who’s to blame for financial difficulties, and uncertainty around how to move forward.

Money remains a taboo and emotionally charged subject, even among those closest to us. People’s beliefs about money are deeply rooted and in many cases tied to early childhood experiences. Discussing finances is hard. Harder still when priorities are misaligned between intimate partners, and spending leads to increased stress and feelings of helplessness. 

While there are arguments for keeping at least some finances separate in a relationship, the downside to this approach is secrecy. In some cases, one spouse may not even know about the other’s financial hardships until they’ve reached a boiling point. One spouse may feel betrayed and misled while the other feels embarrassed, ashamed, or even scared to discuss what they’re going through.

This lack of communication can also amplify individual and interpersonal strains and be a major barrier to discussing other points of contention. Relationships are always a work in progress and fireworks are almost always inevitable when financial pressures are added to the equation. 

Declining physical and emotional health

Chronic stress is fast becoming one of the world’s leading causes of illness and mortality. It can have dire impacts on one’s cardiovascular health, mental health, and propensity to self medicate through alcohol, gambling, and other addictive substances. And much of this epidemic can be traced straight back to, you guessed it, recurring challenges with money and debt.

We’ve already discussed how debt can cause undue stress around one’s ability to retire at a reasonable age and live comfortably on a fixed income. We’ve also discussed the conflict and relationship schisms that can result from debt and financial difficulties. Unfortunately, for many people, that’s only the beginning.

Poor diet

Everyone knows a good, varied, diet is important for sustaining health and longevity, but many people experiencing financial troubles often report having habitually poor eating habits. The reasons are mainly threefold:

1. They may not be able to afford groceries and often skip meals as a result,
2. Processed foods often seem cheaper, are more accessible, and are easier to eat on the go
3. Processed salty, sugary, and fatty (i.e., comfort) foods offer a physical and emotional reprieve from the mental and emotional toll of financial stress.

A poor diet can contribute to high blood pressure and other cardiovascular issues, type two diabetes, fatty liver disease, and a range of other health issues. There is also evidence it could lead to cognitive decline, and disruptions to one’s mental and emotional wellbeing. Consistently undereating and malnutrition can have similar negative consequences both in the short- and long-term.

Sleepless nights

A consistent seven or eight hours of good sleep is essential to clear the brain of toxins, consolidate memories, regulate mood, and rest the body. It’s also one of the first things to go when financial difficulties emerge.

People trapped in the cycle of debt often report tossing and turning in bed worrying about how they’ll afford their bills and other financial responsibilities. Beyond elevating blood pressure and increasing the likelihood of dementia and other mental and cognitive illnesses, people who are sleep deprived also tend to underperform at work, make worse financial and other lifestyle choices. 

Increased anxiety

The fight or flight response is supposed to be a temporary mechanism for people to escape situations of immediate danger. For those struggling with debt, those situations can feel like an all day, every day experience — causing their systems to be constantly flooding with cortisol and adrenaline.

Imagine spiraling into a full-blown panic every time the phone rings, a bill arrives in the mail, or the pantry needs to be restocked. This of course, is extremely unpleasant. But, even more there are significant and serious health risks associated with being so on guard so much of the time.

People experiencing long-term anxiety are at a heightened risk of cardiovascular issues, self harm, addictive and self-medicating behaviours, cognitive declines, and insomnia.

Increased depression

Long-term debt and financial troubles are also associated with the feelings of hopelessness, helplessness, and low self-worth commonly typical of depression. They may feel like they’re wholly at fault for their troubles and even (incorrectly) that they deserve to feel poorly as a result. They may believe (again, incorrectly) there’s nothing they do can help or address the situation and they’ll be stuck in the cycle of debt forever.

Many people don’t recognize the symptoms of depression in themselves, nor are they often able to see a path back to mental, emotional, and financial wellness. This often serves to reinforce their mental decline, and further worsens their cognitive, emotional, and physical health — not to mention their financial difficulties.

Options to assist

Navigating debt and financial difficulties — much less the other non-financial costs above — can feel both isolating and overwhelming. But you don’t have to suffer with these challenges for ever, and you don’t have to deal with them alone.

At MNP, our Licensed Insolvency Trustees offer a Free Confidential Consultation to all Canadians who want to review their financial situation and discuss their options to deal with unmanageable debt. Beyond explaining your options in detail and helping you choose the right one for your unique situation, they can also help you connect with other service providers and specialists to help you recover in all areas of your financial, physical, and mental wellbeing.

If you’re not yet ready to speak with a professional, we also offer a wide range of DIY Debt Solutions on our website to help you take charge of your financial situation and find the path to the financial fresh start you need and deserve.

• Debt Calculator allows you to compare various debt reduction strategies such as Bankruptcy, a Consumer Proposal, debt management plan, and full payment to determine which would be most timely and affordable
• Budget Tracker Spreadsheet helps you visualize and prioritize your monthly spending and create an action plan to deal with your debt and improve your savings.
• We also have a directory of non-financial help resources to help you navigate challenges that may have resulted or contributed to your debt challenges.

No matter your financial or emotional challenges, there’s always hope for a brighter future. The sooner you can begin your recovery, the more time you have to change the narrative.