How debt is a downer

Debt is a drag. Not only on your credit score, but also on your psyche. It's a dark cloud that lurks over many corners of life, casting a shadow over your confidence, ambitions and relationships.

The stress that comes from debt "may even completely eliminate all the happiness that you can get from spending your money," says Ryan Howell, associate professor of psychology at San Francisco State University and co-founder of Beyond the Purchase, a website that examines the psychological link between money and happiness.

But a massive debt payoff can bring a host of psychological benefits. The achievement can restore your self-esteem and help you pursue life goals. The debt pay-down process instills a sense of resolve that will help you stay financially healthy.

If that's not motivation enough, consider this: the trickle-down effect can lead to improved health and restored relationships, says Carole Stovall, a psychologist and executive adviser in Washington, D.C.

The benefits of paying off debt go well beyond the bank. So whether you're nearing the finish line or miles away, think about these ways debt payment can help return balance to your mind and body.

Less stress, improved health

It's no surprise that owing buckets of money puts a strain on life, but did you know that it's ranked as one of the most stress-inducing life events? "Getting into debt beyond means of repayment" is ranked No. 5 on the Society of Occupational Medicine's 2001 "Life Events Inventory," which ranks the psychosocial stress of 100 life events. The list ranks debt as more stressful than finding out your partner cheated on you.

That stress takes a mighty toll on your body, says Stovall.

"Stress is one of the drivers for health conditions related to cardiovascular disease, allergies, diabetes (and) gastrointestinal disorders," says Stovall.

That's why paying off debt can result in physical healing. "When people pay off debt, they're going to say 'My stomach feels better, my heart feels better,'" says Stovall.

When Kandy Hildebrandt and her husband were paying off $122,000 of debt, the stress hurt the Wisconsin couple's health.

Then they paid off their debt in four and a half years. The stress melted away. Balance has been restored to the family's finances, which Hildebrandt says is "awesome."

Emotional relief

Eliminating debt is more than just a numbers game. It's an act of breaking free from difficult past experiences. Debt associated with rough events -- such as divorce or a reckless phase in life -- is painful to carry around. So when you finally cut that debt from your life, you'll likely "experience tremendous emotional liberation," says Dallas-based financial adviser Derrick Kinney, who has seen this reaction especially in divorced clients.

"Paying that debt off ... separates them from the other person," says Kinney. That enthusiasm can lead to better financial and personal decisions in the future. "They don't want to go back to what they experienced because the pain was so great," he says.

For Hildebrandt, she associates those years of paying off debt with a very difficult time in life. She cared for their three children while her husband worked two jobs, his day job as a chemist and a night job mopping the floors of a grocery store. He barely slept. And when gas prices rose, he slept in his car overnight, even through the brutal Wisconsin winters.

Once they were free from debt, he quit his part-time job. Now, when he walks into a grocery store, Hildebrandt says her husband always stops and looks at the floor. "He's relieved he doesn't have to do that anymore."

Freedom to pursue other life goals

When you're living with massive debt, it's easy to put your life on hold. All of those life dreams -- getting married, launching a business, having a baby -- seem impossible to pursue when your financial life is in disorder.

Hildebrandt and her husband could hardly fathom achieving her goal of purchasing a home with her 11 credit cards and a substantial personal loan, but after those grueling years of paying down their debt, they saw their credit scores rise and their finances stabilize. As they approached the debt-free finish line, they closed on a house with a low fixed interest rate.

After clients pay off debt, "it gives them a lot more freedom," says Chris Dlugozima, community relations coordinator for GreenPath Debt Solutions in New York. "I had a client (who) came in to see me; he was devastated. His fiancee had found out about his financial situation. He wasn't sure if the marriage was going to go through." Dlugozima worked with him to put him on a special payment program that helped him steadily knock off debt. Now, several years later, this client is not only married, but expecting twins.

"It's not just about the money, but about how the money can get in the way of life's other goals," says Dlugozima.

Confidence in your sense of self

Debt carries a huge stigma and can weaken self-esteem at its root.

"Real financial stress -- it eats a person's soul in a way that's very different than other parts of our lives," says Howell.

The shame associated with debt can drive people to mask their hardship in unhealthy ways. "You can still have the nice house, the nice things," says Dlugozima. "But really, behind it, the financial walls are crumbling."

Indebtedness is painful, but so is losing face when it comes to light. "People are pretty unforgiving ... when you essentially lose financial trust," says Howell.

After Francine Bostick and her husband, a couple based in Kansas, paid off $120,000 of debt in five years, they could finally afford to buy a new car for the first time in their lives. "When (the car salesman) said they were going to run the credit check, I started to get that sick feeling, (like) when I had debt," says Bostick. "Then I thought, 'No, this is going to be good. Come on, run it!' I couldn't wait."

Confidence turns on like the flip of a switch, Dlugozima says, adding that people even want to share their debt stories. "You become more open about it because you've gotten through the other side," says Dlugozima. "It's empowering."

The strength of mind to not return to debt

When you pay off a big debt, you strengthen your resolve to stay financially solvent.

That comes with one important caveat: Your ability to stay out of debt likely depends on how you paid off your debt, says Kinney.

If you worked hard to steadily pay off your debt, you likely have practiced discipline to keep your finances in check going forward. "The clients that really push through over a number of years and a lot of sacrifice kept their debt paid down," Kinney says. Even though she's now debt-free, Hildebrandt's family has remained strict with their spending. "We just worked too hard to go back into debt," she says.

But this resolve may not stick with you if you paid that hefty tab with a windfall, such as a bonus or inheritance. "Down the road, (these) people are likely to go back into debt because they didn't earn the money and they didn't have any 'sweat equity' in paying off the debt," says Kinney.

Of course, if pennies from heaven fall into your life, Dlugozima says it makes sense to put it toward your debt. "But if it's just done in a vacuum in a way where you're not looking at your spending or budget, you're doomed to repeat the sins of the past," he says. "The two need to be tied together to make it stick."

Improved relationships

The relief that comes from resolving financial difficulties has a generative power. A marriage that survived the challenge -- without the casualties of lost respect or bitterness -- will likely grow stronger, says Stovall. The process of paying off debt also encourages couples to communicate more honestly. Dlugozima says his organization frequently receives calls from people who want to fix big financial blunders before their spouse finds out. But for couples such as the Hildebrandts and the Bosticks, full disclosure allows partners to attack the problem -- not each other.

If a couple is functioning better, "that absolutely has a trickle-down effect on children," Stovall says. What's happening on a psychological level is a massive reduction of stress, making the parents less anxious or depressed. As Bostick drew near to paying off her debt, her adult daughter told her that "I was a lot nicer to be around. I wasn't as snappy."

Kinney finds that parents also become more vocal about teaching their children responsible financial behavior and sharing their success story with neighbors, friends and even strangers. When Hildebrandt shared her story with a few publications, she received letters from folks who heard her story and were encouraged. "They said, 'What you did in four years is somebody's house!' One said, 'I don't have that much debt; I'm going to start paying off my mortgage sooner.'"

An altered link between spending and happiness

Let's be honest. Spending money triggers emotions. It can feel good to buy those designer jeans, and it can feel great to anticipate the happiness those jeans will bring. This is what they call retail therapy.

But debt payment is painful, and once you've felt that pain, the equation between money and happiness can change.

Howell's research looks at the lasting emotional impact of different purchases.

"People tend to expect that certain types purchases are going to make them a lot happier than they really will," he says. "It's not that they won't make them happy at all, but their bang for the buck is much smaller than they anticipate."

Typical big bummers: electronic devices, clothing and video games, to name a few. Likely joy creators: experiences, such as dinner with friends or a weekend getaway.

Back in the day when Bostick was sinking into debt, "I spent money on just getting stuff for my adult children and my grandchildren." It seemed important at the time, but climbing out of debt shifted her views on what's truly important. "Now it's like, you don't need to spend that money. They love you, whether it's a $5 gift or a $500 gift."

A new set of temptations

After you put your last debt payment behind you, a new set of temptations will rush at you.

For one, your restored credit score will flag credit card companies, who will try to woo you with competing offers, says Dlugozima. The moment a new card application pops into Hildebrandt's mailbox, "I immediately throw it in the garbage," she says.

That kind of swift resistance is necessary to avoid the onslaught of temptations.

Stovall says the newly debt-free may feel enticed to celebrate their solvency by making a big purchase. But that's exactly the wrong move. "Whatever they did to pay off debt is really the new normal," she says.

Kinney recommends small treats when quarterly or yearly goals are achieved. It's important to celebrate success. "That way you're meeting the need to be rewarded along the process, and not building it up so you just want to go on a spending binge after you've paid off all your debt," he says.

For Hildebrandt, her biggest temptation "is to not delay gratification." Once her family emerged from debt, she couldn't help but notice all the things they needed. But instead of purchasing everything that came to mind, they made a list, prioritized and bought only the most pressing items within their budget.