Debt and Over-indebtedness: Psychological evidence and its policy implications

Abstract

This paper reviews psychological studies of real‐life use of credit, debt, and overindebtedness, with the aim of making policy recommendations that could reduce the damage done by debt to both individuals and society. The overall level of debt in society is heavily influenced by the level of economic inequality and social insecurity, and no psychological factor can prevent debt if excessive socioeconomic disadvantage is not addressed. Within that constraint, psychological precursors to debt problems, psychological impacts of debt, and psychological strategies to help people get out of debt can be identified. Research results in these areas are used to formulate a series of recommendations that could help mitigate debt problems.