This Harvard professor says that car debt ‘tanks' life satisfaction, while credit card debt is ‘catastrophic’ for it — but reveals 1 kind of debt that ‘doesn’t lower happiness’

‘Tanking’ life satisfaction

People with debt are three times more likely than debt-free people to struggle with mental health issues, such as anxiety, depression, and stress, according to AIMS Public Health.

No wonder then that 65% of American adults say they would define financial happiness as debt-free living, according to a survey by Empower.

The latest surge in debt for many Americans is unlikely to lead to happy outcomes, according to Brooks. “Student debt lowers life satisfaction, car debt tanks life satisfaction, credit card debt is catastrophic for life satisfaction,” he said.

Personal finance celebrity, Dave Ramsey, would likely agree with this assessment. He doesn’t believe it’s inflation that is holding Americans back — but overconsumption and a lack of financial planning.

“Let’s be clear here. The debt is not because of inflation,” Ramsey said in an episode of his finance series, The Ramsey Show. “The debt is because [people] wussed out and refused to cut [their] freaking lifestyle to offset inflation.”

The biggest indulgent purchase keeping Americans living paycheck to paycheck? Cars.

The average monthly car payment is $735, as of the first quarter of 2024, according to Edmunds.

However, the data shows that 17.3% of car owners with an auto loan had a monthly payment above $1,000 during the same quarter. This means many Americans are stretching their budgets thin simply to hold onto their vehicles.

Despite these stats, it seems as though many Americans can’t shake their habit of borrowing.

Total household debt hit a record-high $17.80 trillion in the second quarter of 2024, according to the Federal Reserve’s quarterly household debt and credit report.

Instead of cutting back on spending in the face of rising costs, consumers across the country have simply plugged the gap in their finances with borrowed capital, as per research from the Urban Institute.

As for Brooke, his research also surfaced a rare exception to the correlation between debt and life satisfaction.

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The one and only exception

In the midst of all the gloom and doom about the psychological impact of debt on the average American, Brooks found some good news.

“The research shows that mortgage debt is the only kind of debt that doesn't lower happiness,” he said. He believes there are many reasons for this.

It’s logical, for instance, to borrow money to buy a home because it’s nearly impossible to buy one in cash in most places.

Also, the cost of a mortgage is relatively lower than most other forms of debt. The average interest rate on a 30-year fixed mortgage is 6.35% as of September 2024, according to the Fed.

By comparison, the average rate on a personal loan for someone with good credit could still be between 10.73% and 12.50%, according to Bankrate.

Furthermore, Brooks suggested that a mortgage acts as a forced saving mechanism for people who struggle to save money independently, which is another reason he considers it benign.

However, there is a caveat to this exception. A mortgage doesn’t impact life satisfaction, “unless it's too big,” he told Kamel. “Even if you can afford the payment, if it's such a big thing that you're worrying about it every month then it's going to lower your life satisfaction quite a lot.”

The average mortgage balance, as of 2023, was a relatively modest $244,498, according to Experian data.

Put simply, mortgage debt is unlikely to impact life satisfaction for most Americans.