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Psychology of Debt

Information from a Houston Bankruptcy Attorney

Whether you are considering filing for bankruptcy, have already declared bankruptcy, or are merely looking for ways to handle your finances better, it is important to understand the psychology of debt and the psychology of spending.  When you are completely overwhelmed by debt, it may be time to call a Houston bankruptcy lawyer.                

Debt Can Affect Your Health

Anyone who has had more debt than they can pay know that the constant stress about credit cards, collection attempts, paychecks, and making payments on time is terrible. What is worse, however, is that debt does not just affect your state of mind and emotions. Owing money, being worried about eviction and foreclosure, and facing stacks of unpaid bills creates physical stress and even fear, which, when sustained over long periods of time, can damage your health. The stress and fear elevate certain evolutionary defenses, such as adrenaline, but over time those same defenses actually lower your immune system and make you weaker. Feeling fatigued, run down, and emotionally exhausted are all common symptoms of debtors; additionally, debtors are more susceptible to illness, which can be expensive and cause people to miss work.

Chronic debt also causes large amounts of stress between spouses, family members, and friends.

How Credit Card Companies Manipulate Card Holders

Part of the reason it is so easy to go into credit card debt is because credit card companies want to you to.  Credit card companies are large corporations that make tens of billions of dollars in interest and penalty fees. There are many ways that they use psychology to ensure that you spend more and pay less. Some of these include: 

  • Taking Advantage of Future Discounting: Future discounting is a term used to describe the psychological difference between present pain and future pain. We constantly rate negative or painful events as worse if they are happening now, whereas the further in the future the event is, the less negative we rate it. This is why it is more "painful" to pay with cash than with a card, because the negative event of letting go of your money is delayed when you pay with credit. Credit card companies know this, and also use the same principle when they offer low intro rates or special sign up offers.
  • Anchoring Your Payments: Anchoring is another psychology term; it helps explain how we make certain decisions based on only a few factors. When credit card companies use this tactic, they "anchor" your monthly payments to extremely low figures so that you will lower your decision about how much to pay, even if you are able to pay more. This means that credit card companies collect more money interest from you.
  • Anchoring Your Limit: Anchoring also works in reverse. Most credit card companies will annually increase your spending limit, even if you have outstanding debts and your finances have not changed. This causes people to believe that they can responsibly spend more because the credit card company has approved it; in fact, the credit card company knows that most people cannot responsibly spend more, and up the limits so they can make more money.  

What You Can Do

  • Get help. A Houston bankruptcy attorney can advise you on alternatives to bankruptcy as well as Chapter 7 and Chapter 13 bankruptcy processes.
  • Be aware of the tricks that credit card companies will use and try not to believe them.
  • Always use your income as a basis for your budget, not your credit limit.
  • Don't avoid bills just because they stress you out. The interest will only accumulate and you will be stressed out for a longer period of time.
  • Take care of your health to combat the negative effects of stress.
  • Every time you want to buy something that is moderately expensive or expensive, wait a week to determine if you really need it.
  • Try not to shop to counter feelings of stress or sadness.
  • Find activities for you and your spouse or you and your friends to do that do not cost any money. Local newspapers often list free community events.

Contact a Houston Bankruptcy Attorney at Malaise Law if you are having difficulty paying your bills and need debt relief.




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