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Money stress and mental health: 5 ways to cope

Unemployment and financial uncertainty can impact more than your bank accounts


Financial instability can take a toll on your mental health. Here’s how you can add some certainty to an uncertain time.

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The coronavirus pandemic left millions of Americans unemployed and wondering how they were going to cover the bills or keep a roof over their heads. As employment and inflation problems continue to ripple out during the pandemic, financial difficulties cause stress for many.

With health and financial concerns piled up, your mental health can take a serious toll. But it doesn’t always take a global crisis to trigger concerns about getting out of debt or planning your short- and long-term financial goals.

When financial stress sets in, you can feel it in more than just your wallet. According to at least one study,1 stress over money can translate to increased psychological stress, lower self-esteem, strained interpersonal relationships and difficulty being productive and focused at work.

But there are ways to manage money anxiety – and they hinge on having a solid financial plan.

“If you don’t have a clear strategy of how your money can align to your life, then you will have stress,” says Riley Poppy, behavioral financial adviser and founder of Ignite Financial Planning. “Developing strong financial habits are a keystone that can help bring together other areas in your life.”

With that in mind, here are five productive ways to manage financial stress and build a positive relationship with your money.

1. Start with a budget

A budget is one of the simplest tools you can use to alleviate financial stress, but it’s one many people do without. Creating a workable, realistic budget is especially important if money stress is due to a loss of income because you’ve been laid off or your hours have been cut at work.

Creating a budget doesn’t have to be complicated. A basic budget just involves comparing your expenses to what you earn to determine how much you save and spend each month.

Budgeting apps can make tracking expenses easier so you can determine where you can reduce or eliminate spending to save money. You can also save by negotiating bills, says consumer savings expert Andrea Woroch.

Her best tips for doing so include taking these steps:

  • Calling service providers and asking for a discount
  • Comparing pricing from different providers, such as insurance companies, to find the best rates
  • Reducing your cellphone plan or switching from contract to prepaid
  • Raising insurance deductibles to lower your premiums
  • Taking advantage of free streaming and digital downloads offered by your library

These are small but actionable things you can do to lower bills that can have a big impact on alleviating stress, according to Woroch.

2. Create a plan to reduce debt

Debt can be a source of financial stress if you’re making payments but feeling like you’re getting nowhere fast. The first step in successfully tackling debt is knowing what you owe.

“Many individuals who have fallen well into debt sometimes don’t even know who they owe money to,” says bankruptcy attorney Karra Kingston. Or, you may know who your creditors are but are clueless about how the balances add up.

Kingston says pulling your credit reports to see where you’re at can be a step in the right direction for managing debt. From there, you can decide on specific strategies for paying off your debt.

For example, Woroch suggests transferring credit card balances to a new card with a 0% introductory APR. “This way, the payments you’re making are going toward the balance and not just interest,” she explains.

If used correctly, a balance transfer credit card can help you get out of debt faster by saving money on interest while you pay down the original amount. Transferring a balance is fairly straightforward and an easy way to get a break from fast-accruing interest. Some cards even offer as long as 18 to 21 months of zero interest, giving you plenty of time to pay down the balance before the regular APR kicks in.

Aside from credit cards, consider other options for managing debt to minimize financial stress. For example, your options might include these:

  • Using a personal loan to consolidate debt
  • Refinancing private student loans to take advantage of lower interest rates
  • Refinancing your mortgage if you own a home

What’s most important is taking action and not allowing yourself to become paralyzed by debt stress.

“People think if they can try to ignore their debt and not come to terms with it, the problem will just go away,” says Kingston. “Unfortunately, the problem only becomes worse.”

3. Establish emergency savings

Having an emergency fund can help you stay afloat and minimize financial stress during tough times. For example, if you get laid off from work or you get sick and can’t work, your emergency savings can help to pay the bills.

If you don’t have emergency savings – or you have some cash tucked away but not enough to make you feel comfortable – it’s important to focus on building it up.

Reviewing your budget again to find expenses you could cut is one way to find money to save. But if you’ve already trimmed your budget down to the bare minimum, that might be difficult.

In that case, Woroch says the answer is simple: Find ways to bring in more money.

“There are so many options for earning extra income that can really help if you’re feeling financially strained,” she says.

For example, you could try one of these ideas as a side job:

  • Get paid to be an online teacher or tutor
  • Become a pet-sitter or dog walker
  • Become a delivery person with Postmates, Door Dash or Instacart
  • Do small tasks through TaskRabbit
  • Become a freelancer

Cash back apps offer another easy way to make extra money, according to Woroch. You can use cash back apps like Ibotta or Rakuten to earn cash back on purchases made online or in-store. And you can easily increase cash back earnings by stacking these apps with a cash back credit card.

Just remember to pay your balance in full to avoid interest charges, since that can take away from your cash back earnings. And consider keeping cash back savings in a high yield savings account to earn the most interest on your money.

4. Work on your credit

A good credit score can make it easier to borrow money at favorable rates when you need it. If you haven’t gotten your emergency fund fully funded yet and you need a small personal loan, good credit can make borrowing less expensive.

Kingston says one of the first steps toward better credit is reviewing your credit history and disputing errors. You can dispute credit report errors online with all three major credit bureaus.

If you don’t have a lengthy credit history or you have bad credit, opening a credit card account can help with improving your credit score. In the case of bad credit, you may need to start with a secured card first.

Once you have a credit card account open, these habits can help you build good credit:

  • Paying your bill on time or early each month
  • Keeping a low balance relative to your credit limit or, better yet, paying in full
  • Holding off on applying for new credit unless it’s absolutely necessary
  • Keeping accounts open and active as your credit improves, rather than closing them

Signing up for a free credit monitoring service can help you track your credit score progress from month to month. Credit monitoring can also help you detect potential fraud and avoid credit score damage related to identity theft.

5. Get professional help if you need it

If you’ve tried these tips and are still having trouble with money stress, it might be time to call in the pros.

“Knowledge is also a treatment in managing financial stress, which is why it’s so important to acquire the right knowledge or work with someone who can serve as your guide,” says Poppy.

Poppy explains that a certified financial planner who has a background in behavioral science or behavioral finance can be helpful in creating a financial plan that addresses money anxiety. But if you can’t afford the fee, there are plenty of ways to get low-cost or free financial advice.

For example, you could work with a nonprofit credit counselor to get advice on budgeting or creating a debt payoff plan. Government websites, financial nonprofits and personal finance websites can also be excellent resources for financial advice. In the worst-case scenario, you could also consider getting a free consultation from a bankruptcy attorney, suggests Kingston.

Those are ways to address the financial side, but you may also want to consider working with a therapeutic counselor to address the mental health effects of money stress. The more well-rounded your approach to managing financial anxiety is, the easier it may become to cope with money challenges.

1Sturgeon, John A. PhD; Arewasikporn, Anne MA; Okun, Morris A. PhD; Davis, Mary C. PhD; Ong, Anthony D. PhD; Zautra, Alex J. PhD The Psychosocial Context of Financial Stress, Psychosomatic Medicine: February/March 2016 – Volume 78 – Issue 2 – p 134-143. doi: 10.1097/PSY.0000000000000276

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