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Credit Card Debt and Your Happiness

Credit Card Debt and Your Happiness

Conventional wisdom says debt makes us unhappy. But psychologists say we control our own financial satisfaction — whether or not we’re in the red.

The common conceptions of debt are that it’s a drag, a burden, a stressor — and that having debt makes you unhappy. And yes, paying down debt requires discipline, which is nobody’s idea of fun. But, there’s a bright side: How we work to get out of debt can pay off in more ways than financial. Being proactive about paying down debt could actually make us feel more satisfied and happier. 

In a Marcus by Goldman Sachs® commissioned study on debt, about half of the respondents said they felt in control of their credit card debt. That group was more than twice as likely to say they felt satisfied with their finances than respondents who said they did not feel in control of their credit card debt. They were also more likely to describe themselves as hopeful, confident, and happy. On the flip side, those who did not feel in control were more likely to describe themselves as stressed, burdened, and insecure.  

Note that the difference isn’t whether they had credit card debt or not; it’s whether they felt in control of it.

To feel good about your money, what really matters is seeing yourself in the driver’s seat. If you have credit card debt, making a plan to manage it can help you feel less stressed. If you wish you could make more money, finding ways to get the most out of what you do have can make your finances feel more manageable. Essentially, when it comes to the emotional impact of your financial situation, it pays to remember that you’re in charge.

Responsibility could be the key to happiness

One factor that determines financial satisfaction is where you put responsibility for your situation. If you have an internal sense that you have the power to influence what happens to you, you’re able to focus your energy on doing just that. But if you believe external factors play a dominant role, you’re more likely to feel out of control. 

“You feel the outcomes in your life are unrelated to what you do or don’t do, so there’s a sense of powerlessness or hopelessness,” says Brad Klontz, financial psychologist and associate professor at Creighton University. 

Klontz says the distinction is similar to the difference between guilt and shame. “Guilt is, I did something wrong, and shame is, I am something wrong,” says Klontz. “Guilt is actually a healthy psychological emotion, because it inspires you to make repairs. Shame says that there’s something wrong with me, and that’s not very energizing — that saps your energy.” 

Jennifer, from Austin, Texas, is one example of this idea in action. Eleven years ago, early in her marriage, Jennifer realized that she and her husband had $20,000 in debt, which they tallied in a three-ring binder. In the first step of a focused, two-year journey to paying it off, Jennifer, acknowledged she had accrued debt because she’d been living beyond her means, and her husband, owned up to not paying enough attention to his finances. 

At first Jennifer says they felt overwhelmed. “It seemed impossible,” she says. “We were disappointed we’d gotten ourselves so deep in debt, but it felt good to write it down and have a plan.”  

The importance of taking control

As Jennifer and her husband set out to pay down their debt, they got creative — and strategic. For instance, they found deals that not only gave them access to a service free for 30 days but also threw in a gift card to a department store or the grocery. 

Jennifer was careful to keep track of these deals in a notebook so they were sure to get the maximum savings without being hit with additional charges after the promotional period. If a local restaurant offered a buy-one-get-one appetizer special, they would eat there for $20, rather than dine with friends for $80. To save on heating and air conditioning, they closed off vents and shut doors in their house. Jennifer says wherever they found unnecessary spending in their daily lives, they took steps to cut back, which ensured debt control.

“It was like a chess game,” she says. “It was a full-time project, but there was such a rush out of being able to do it.”

Michael Norton, Harvard Business School professor, conducted credit card experiments in which he found that same thrill at “gamifying” the process of paying down debt led to positive results. 

For example, typically, credit card bills list minimum payments and total balances, and most people pay one or the other. In his study, Norton turned the bills into interactive games. People could choose specific items to pay off individually, and when they did, each paid-off item would explode on the screen. 

That experience alone spurred people to pay 5 to 10 percent more. “Not only do people feel more in control of their debt, but that control leads them to pay off more.” 

Jennifer and her husband performed a similar ritual. As they paid off each credit card they would cross it off their list in the three-ring binder “so we could see some success, like weight loss — keeping track of it and making [ourselves] feel better: ‘Look we paid off two. We only have four more credit cards to pay off,’” she says.

If you receive your credit card statement on paper or print it out from your online account, Norton says crossing out individual items with a pen and then paying the corresponding total could give you that same satisfaction. 

How spending choices can lead to joy

Jennifer and her husband were also careful to be deliberate about how they spent their discretionary income, always choosing purchases that led to the greatest happiness. For example, rather than spending on things, they chose to spend on experiences — and even then, they found ways to save. “We like to socialize and wanted to be with our friends, who would go to dinner or stay out late,” Jennifer says. “We would say, ‘We’ll meet you at happy hour.’” 

This aligns with research by Amit Kumar, postdoctoral research fellow at the University of Chicago Booth School of Business, who found that people get more happiness from experiential purchases such as travel, meals out, and tickets to performances, concerts, plays, and sporting events, than from material purchases such as clothing, jewelry, furniture, and gadgets. 

Why? Kumar explains it this way: We usually have experiences with other people, so they provide a social value that material goods don’t. 

“Social scientists have known for a long time that social relationships are one of the best predictors of human happiness,” he explains.

The thrill of victory

As they made progress in paying down their credit card debt, Jennifer and her husband realized it wasn’t just their credit card balance that had changed. 

“We had changed our lifestyle to accommodate how much debt we had,” Jennifer says. “I remember the day we paid it off. It was dark in our house, and we were just sitting there, and I said, ‘Look, here’s the list. It’s done.’ We were both kind of stunned and sat in silence for a few minutes.”

But then a feeling of empowerment came over them. Since then, they’ve bought a house and their own deck-building business, and set up a retirement plan for each of them. 

“We’re in a place we never imagined,” Jennifer says.


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*The Marcus by Goldman Sachs Debt Survey was conducted between November 9 and November 16, 2016, among 1,000 nationally representative Americans ages 22 and over, using an e-mail invitation and an online survey.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.