Why Does Debt Feel Like It Defines Us?

Financial Wellness By Noah - July 16, 2020

People of all ages and stages of life experience debt. So if most people have it, why does debt feel so personal, and why is it so hard to admit it when we’re struggling?

Debt isn’t just a problem with money in your wallet or bank account. The stress of debt can manifest in your mood and even your body. Debt can also stand between you and important milestones for your family. Managing your finances to keep debt under control can be good for your wellbeing in several ways, so let’s dig into our relationship with debt.

What Does It Mean to Have Debt?

At its most basic, debt happens when you owe something valuable (usually money, but not always) to someone else. Asking a friend to spot you $20 for lunch or applying for a $200,000 mortgage loan from a bank are both ways to take on debt.

The difference (other than the number of zeroes) is that your friend will only ask for the $20 back, whereas the bank will add a considerable amount of interest over time to the principal amount that you borrowed. If you take out a $160,000, 30-year mortgage to buy a $200,000 home, and interest is set at 3.78%, you could end up paying over $107,000 in interest by the time you repay the entire loan. That’s two-thirds of the amount you initially borrowed!

Americans aged 35-64 carry an average debt balance over $100,000. When you consider how much interest can add to the starting amount you borrowed, it’s easy to understand how quickly people can feel in over their head.

How Does Being in Debt Affect You?

Part of the trouble with debt is that it has a tendency to pop up everywhere. From the bank to the doctor’s office, here’s how debt might affect different areas of your life.

Debt and health

Researchers have studied debt extensively. Studies show multiple connections between debt and physical and mental health. Money problems have consistently ranked as a top source of stress for Americans since 2007.

Anxiety, stress, sense of helplessness, and depression are all common reactions to debt. These negative emotions can affect your physical health, too. A range of medical issues such as heart disease, back problems, ulcers, weakened immune system, and more are strongly associated with anxiety. So if debt feels especially personal or sensitive, that can be because the stress and guilt you feel show up in your body, too.

Debt, finance, and opportunity

Debt can also feel like an ever-present monster because of the ways it affects your finances. As if the mental and physical connections weren’t enough, debt impacts your opportunities.

On a daily or monthly level, debt can mean a stack of bills. You may not be able to afford some fun nights out or activities for kids because of how debt affects your family budget.

Lenders look at your debt-to-income ratio (DTI) to determine whether to offer you a loan. Carrying too much debt can affect when you can buy a home or borrow funds to start your dream business. Even if your income is high and you pay bills on time, debt can get in the way of the life you’ve imagined. DTI has generally been increasing over time, which is a sign that many families may be finding it harder to meet milestones or taking longer to get out of debt.

How much debt is healthy?

The reality is that 80% of us do live with debt, and probably will for a while. That doesn’t mean you’re doomed to suffer all the possible negative impacts. Careful debt management can help you keep debt (and stress) under control.

Ideally, you should aim to keep your total debt-to-income ratio (DTI) around 15-25%. A DTI under 20% is generally considered low enough to make you an excellent candidate for other loans or financing when you need them. The maximum DTI lenders will accept varies, but 40% is generally a sign that you’ve got about as much debt as you can comfortably handle. You can calculate your own DTI by checking what percentage of your monthly income goes toward paying debts.

Why Should You Avoid Debt?

As you can imagine, the more you can avoid debt, the more freedom you’ll have over your finances. You may see several advantages from getting out of debt or avoiding it in the first place:

  • Lower monthly payments
  • Possible option to retire earlier, since you won’t have outstanding loans to pay
  • More flexibility to handle emergency expenses
  • Less stress and worry 

With that in mind, not all debt is equal. The “good debt vs. bad debt” rule says debts for something that increases your income or net worth over time (like student loans for education) can be worth it. Unsecured versus secured debt is also an important distinction to keep in mind. Secured debt lenders have the ability to seize assets (e.g., mortgage lender foreclosing on your home), whereas unsecured debt creditors may need to convert to secured debt before they can pursue this option.

Ultimately, before you take on any debt, it’s important to consider the benefits, risks, and terms carefully.

How Many Americans Are Debt Free?

Debt is the norm for most people. Mortgages, student loans, and credit card debt (which grew 285% from 1980-2010) make up a large portion of individual or household debt. In other cases, people go into debt to pay for major projects like home renovations. The struggle is balancing debt management against financing life-improving projects.

Even if debt is common, and often difficult to beat, that doesn’t mean it’s impossible. Around 20% of people across generations live debt free. If you’re starting to plan your path to being debt free, a debt relief service like a credit counseling program can help. Working with a financial advisor to assess your options is a smart first step to getting out of debt.

At Noah, we’ve noticed that 70% of our homeowner partners use at least part of the funding they receive from us to pay off other debts, and 35% select debt payoff as their primary use of funds. That’s notable because it shows how important debt relief is for many families. Once you get debt to a healthy level, you may have more flexibility to tackle other financial plans.

Noah Home Equity Sharing

As a reminder, home equity sharing is not actually a debt product. Your financing agreement is structured more like a partnership. Noah doesn’t add interest to the financing you receive (remember, interest can add up to more than 50% of your initial principal over the course of a 30-year loan!). Plus, an agreement with Noah won’t affect your DTI ratio, since you don’t have monthly payments. 

Keeping monthly bills down can be one part of successful money management. If you and your financial advisor agree that tapping home equity is a worthwhile strategy, you’ll need to decide which payment terms make sense for you. On average, financing with Noah saves homeowners $1,480 a month as compared to a HELOC or home equity loan for the same amount. Some homeowners find that it’s easier for them to save for repayment on their own schedule than commit to monthly payments, especially if you’re using your financing to pay off debt and improve your overall financial profile. 

At the same time, even working with a home equity sharing company isn’t the same as feeling completely debt free. You’re still in a financial relationship where someone outside your family expects their share of funds by an agreed-upon deadline. This can still be stressful. Even if the financing doesn’t count as debt under DTI definitions, your personal feelings may be that you want to be totally financially unencumbered, as soon as possible. 

Ultimately, the best way to relieve debt stress is to have a solid plan to get your finances in order. If financing with an agreement that doesn’t impact your DTI ratio benefits your health and stress, then home equity sharing may be a useful approach to consider.



Debt doesn’t define your value as a person, but it can impact your health, sense of wellbeing, and opportunities. In that sense, debt can be a defining issue to tackle so you can build your life on your terms.