Getting rid of debt may actually make your brain work better

Getting rid of debt may actually make your brain work better

It doesn’t just feel good to pay off debt, it can improve how your mind works, new research suggests

A new study has a whole different take on what debt relief means.

Getting rid of debt doesn’t just unburden finances, it takes a weight off the mind that clears up cognitive functioning, lessens anxiety and improves impulse control.

The findings come from researchers at the National University of Singapore’s Social Service Research Centre, who studied almost 200 low-income people who unexpectedly had portions of their long-running mortgage, utility and municipal debts paid down by a charity.

Researchers tested participants before and after their windfalls on their ability to spot matches and mismatches. The recipients were also tested for generalized anxiety disorder and their ability to make more beneficial financial decisions.

The study found:

• Average error rates in the cognitive function tests fell to 4% after the debt was paid down, compared to a 17% error rate beforehand.

• The proportion of participants showing generalized anxiety disorders went from 78% to 53% after the debt relief.

• Numbers of people showing so-called “present bias,” which favors instant gratification, dropped to 33% from 44%, a sign that their impulse control had improved.

‘Because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty.’

— Dr. Ong Qiyan, National University of Singapore

The university’s Dr. Ong Qiyan said the findings showed the costs of being poor that aren’t measured on a balance sheet. “Our study shows that because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty,” she said.

Of course,the experiment played out on the other side of the globe and involved a very small number of people.

The findings are in line with previous research in the U.S. on the psychological toll of living in poverty. When people live in “chronic scarcity” — meaning they lack sufficient money, housing and food to thrive — their brains become overtaxed because they’re coping with emergency after emergency, research by the nonprofit consulting firm ideas42 found. That in turn can diminish self-control and harm people’s ability “to evaluate options and make high-quality decisions,” wrote ideas42. “In short, scarcity makes us less insightful, less forward-thinking, and less controlled,” the study concluded.

Many Americans are well-acquainted with the stress that financial uncertainty can create. As the nation faces $1.5 trillion in outstanding student debt, a third of students in a survey last year said their student loan bills were a major source of stress. One man said he and his wife would cry the day they paid their last student loan bill. Debt can also affect your dating prospects. Three quarters of people in one survey said credit-card debts would be a turn-off in a potential mate.

Researchers said the Singapore study was another look at so-called “bandwidth taxes,” which are part of the reason some people stayed mired in poverty. “The demands of daily life under scarcity create ‘bandwidth taxes’ that sap mental resources, impairing cognitive ability and causing counterproductive behavior which perpetuates poverty,” the researchers wrote in the study, which was published in the Proceedings of the National Academy of Sciences of the United States of America.

One way to less the bandwidth taxes? Consolidate debt to simplify the pay-off experience, researchers suggested.

America has its own stories about overjoyed debtors who say they have a whole new view of life after their creditors were suddenly satisfied. Last year, Fifth Third Bank said it would pay the approximately $150,000 in student loans of a Chicago single mother with a nursing job.

Afterwards, 30-year-old Jasmin Ford told ABC News,“I just imagine being able to spend more time physically with my family, not having to hustle, having mental freedom and with that, some spiritual freedom. I can open myself to more experiences, opportunities and just be able to sit and be with my thoughts and be able to pursue what it is I came to do.”

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