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Debt Management

Study: Paying down debt is good for your brain

New research shows being in debt hampers decision making, makes you prone to fuzzy thinking


New research suggests that paying down your balances – or at least consolidating them into fewer accounts – may help sharpen your thinking and reasoning skills, allowing you to make smarter decisions with your money.

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If you need more motivation to finally ditch your credit card debt, there’s another good reason to step up your debt-busting efforts.

New research suggests that paying down your balances – or at least consolidating them into fewer accounts – may help sharpen your thinking and reasoning skills, allowing you to make smarter decisions with your money.

According to a recent paper published in the Proceedings of the National Academy of Sciences, people who are relieved of a significant amount of debt tend to not only feel better; they also think better – thanks in part to the fact that they don’t have to worry so much about how they’re going to pay their bills.

“Debt causes significant psychological and cognitive impairment and alters decision-making,” wrote researchers in the report.

See related: Poll: No end in sight for 2 out of 3 U.S. adults with debt

Financial stress lasts only as long as your debt

Excessive debt is not only financially stressful. It also taxes people’s mental bandwidth, crowding out their ability to think clearly. As a result, they tend to make worse financial decisions and are prone to fuzzy thinking.

The good news, though, is the negative effects appear to only last as long as the debt.

Researchers tested whether clearing people’s balances would help relieve their stress and eliminate some of the cognitive problems they were experiencing.

What they found was heartening: Relieving debt really does seem to help people bounce back from the negative effects of financial stress and begin to think more clearly.

For example, people who had been relieved of their debts performed better on cognitive tests and made sounder financial decisions just three months after their balances were cleared. The more debt that was eliminated, the better the study subjects appeared to perform on tests that measured their ability to think and reason skillfully.

You don’t necessarily need to clear all of your balances either to enjoy a cognitive boost. The study’s findings suggest that even consolidating your debts into fewer accounts – thus eliminating the need to manage multiple debts and due dates – can help you decompress and relieve some of your cognitive overload.

See related: 8 myths about settling credit card debt

Money worries blind you to high APRs, excessive fees

The study was small and focused on people whose financial problems were particularly severe. However, it supports previous research that’s found financial stress can seriously hamper people’s ability to make shrewd decisions and problem-solve their way out of financial challenges.

For example, research by Princeton professor Eldar Shafir has found that constantly worrying about money and how to make ends meet can be so mentally exhausting that it makes it hard for people to see past their immediate problems.

As a result, they tend to make more shortsighted decisions and get easily distracted. They also tend to be more prone to overlooking excessive fees and unfair terms – such as enormous APRs.

“It’s closely intertwined with the notion of how much cognitive capacity, how much bandwidth, you’re dedicating to merely surviving,” noted Shafir in a 2013 interview with

“You know, I’ve got $117 in checking and I’ve just given an $80 check and now I have $37 left and tomorrow I’ll get another. All that takes a lot of energy, a lot of mental space. As you do all that, often quite well and quite carefully and quite judiciously, you’re just ignoring a lot of other things.”

As a result, you may be more likely to make big financial mistakes, such as missing a bill or taking out a loan you can’t afford.

See related: 8 steps to reducing credit card debt

Your takeaway

Debt can take a painful toll on your mental health and cognition, sapping you of energy.

However, its pernicious effects aren’t permanent. You can make yourself feel better and begin to eliminate some of the mental and emotional cobwebs that are weighing you down by tackling your debt more aggressively.

The more you simplify your life and take different kinds of stressors off your plate for good, the better you may feel.

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