Debt Relief and the Brain: How Reducing Debt Improves Cognitive Function

By Grant Frost · Physiotherapist • Last clinically reviewed: 21 October 2026

Introduction: Can debt affect the way we think?

Debt is usually discussed in financial terms: how much we owe, how much interest we pay and how long it will take to become debt-free. But what if the burden of debt also affects the mental resources we use to concentrate, solve problems and make decisions?

For people experiencing persistent financial hardship, debt can be difficult to set aside mentally. Different creditors, repayment dates, balances and financial obligations may all compete for attention. That ongoing mental load could make it harder to focus on other tasks.

A 2019 study published in the Proceedings of the National Academy of Sciences investigated this idea by examining people before and after they received debt relief. The researchers were particularly interested in whether clearing individual debt accounts mattered beyond the amount of money forgiven.

The findings suggest that the structure of debt may be an important part of the picture. They also highlight why financial hardship should not automatically be interpreted as a lack of intelligence, discipline or sound decision-making.

How did the study work?

Ong, Theseira and Ng examined 196 low-income people in Singapore who received assistance through a one-off debt-relief programme run by a charity. The programme provided debt relief worth up to SGD 5,000, an amount equivalent to approximately three months of household income for the beneficiaries described in the study.

The researchers assessed participants before the relief and again after it, allowing them to examine changes in cognitive functioning, anxiety symptoms and economic decision-making.

An important feature of the analysis was that some participants had more separate debt accounts cleared than others, even when the dollar value of their debt relief was similar. This allowed the researchers to investigate whether reducing the number of outstanding accounts was associated with changes in psychological functioning and decision-making.

1. Cognitive functioning improved

One of the main findings was that clearing an additional debt account was associated with better performance on a combined measure of cognitive functioning.

The researchers assessed cognitive performance using tasks that included measures of response speed and errors. These tasks provide information about aspects of attention and cognitive control; they are not a complete measure of a person's intelligence or overall mental ability.

The finding is consistent with the idea that persistent financial concerns can consume mental resources. When fewer separate debt obligations need to be managed, some of that mental effort may become available for other tasks.

However, an improvement of one-quarter of a standard deviation does not mean that participants became 25% more intelligent. It describes the size of the change relative to the variability of the measured scores in the relevant population.

2. Anxiety symptoms decreased

The study also found a reduction in anxiety symptoms following debt relief.

The researchers also found that clearing an additional debt account was associated with an approximately 11% reduction in the likelihood of exhibiting anxiety symptoms in their analysis.

These results suggest that the burden of debt may involve more than the immediate financial consequences. Uncertainty about repayments, competing obligations and the ongoing effort of managing several accounts may contribute to psychological strain.

It is important to interpret these findings accurately. The study measured anxiety symptoms using a screening measure; it did not establish that every participant had a clinical anxiety disorder. Nor does it mean that paying off debt will resolve anxiety for every person.

3. Some aspects of financial decision-making changed

The researchers also examined how participants made economic decisions, including their tendency towards present bias.

Present bias describes a tendency to give greater weight to immediate rewards than to rewards that arrive later. For example, someone might prefer a smaller benefit today over a larger benefit in the future, even when waiting would provide greater overall value.

The study found that clearing additional debt accounts was associated with an approximately 10% reduction in the likelihood of present bias.

One possible explanation is that persistent financial pressure makes immediate needs especially prominent. When someone is worried about meeting today's obligations, future benefits may become harder to prioritise. Reducing the mental burden of debt may make it easier to consider longer-term consequences.

However, the results were not uniform across all measures of decision-making. Although the study observed changes in risk aversion before and after debt relief, the number of debt accounts cleared was not significantly associated with changes in risk aversion in the main analysis.

This distinction matters: the findings do not show that clearing more accounts improves every aspect of decision-making. The strongest account-specific findings concerned cognitive functioning, anxiety symptoms and present bias.

4. Why might the number of debt accounts matter?

A particularly interesting aspect of the study is that the number of debt accounts cleared was associated with outcomes even after the researchers accounted for the amount of debt relief.

This supports the researchers' hypothesis that the mental demands of managing separate debts may be important in their own right.

Mental accounting and cognitive bandwidth

Mental accounting refers to the way people mentally organise money into different categories or accounts. Two debts of the same total value may not feel equivalent if they involve different creditors, repayment dates, interest rates, penalties or consequences for missing a payment.

Managing multiple obligations may require someone to repeatedly track balances, remember deadlines, decide which payment to prioritise and worry about what might happen next. These demands can compete with other activities that require attention and planning.

The researchers suggest that reducing the number of separate debt accounts may reduce these mental demands, freeing up some cognitive bandwidth.

This is a plausible explanation for the findings, rather than direct proof of every step in the proposed mechanism. The study supports the importance of debt structure, but it cannot establish that mental accounting alone explains all of the observed changes.

Does this mean the total amount owed is less important?

No. The findings should not be interpreted as meaning that the total amount of debt is unimportant. The researchers found that, for several outcomes, the number of accounts cleared was more consistently associated with improvements than the amount of debt relief itself.

That is not the same as showing that the total amount owed never matters. Interest rates, repayment costs, income, financial security and the consequences of missed payments remain important considerations.

The study raises a useful possibility: the psychological burden of debt may depend partly on how that debt is organised, not just on the total balance.

5. What are the practical implications?

The research has implications for how we think about financial hardship, debt support and the decisions people make under pressure.

Financial stress may affect the resources available for decision-making

When someone is experiencing persistent financial strain, tasks that might otherwise seem straightforward can require more mental effort. Remembering obligations, comparing options and planning ahead may become harder when attention is repeatedly drawn back to urgent financial concerns.

This is one reason it is unhelpful to assume that people experiencing poverty or debt simply make poor decisions because they lack knowledge or motivation. Their circumstances may place substantial demands on the very cognitive resources needed to navigate those circumstances.

Debt support may need to consider complexity as well as balances

The findings suggest that financial support programmes could benefit from considering the number and complexity of outstanding obligations, rather than looking only at the total amount owed.

Where appropriate, making repayment arrangements easier to understand and manage may help reduce administrative and mental demands. The study does not, however, prove that debt consolidation is always the best option.

Any real-world decision about consolidating or repaying debt should take account of interest rates, fees, repayment terms, essential living expenses and the consequences of missing payments. Simplifying multiple debts is not necessarily beneficial if it increases the total cost or creates new financial risks.

Financial wellbeing and psychological wellbeing are connected

The findings reinforce the idea that financial circumstances and psychological functioning can interact. Debt relief may improve more than a person's balance sheet, particularly when it reduces the number of ongoing obligations they need to manage.

That does not mean debt is the only cause of psychological distress, or that debt relief alone will resolve mental health difficulties. Rather, it highlights one pathway through which financial circumstances may influence day-to-day functioning.

6. What are the limitations of the study?

Although the results are important, several limitations should be considered before applying them more broadly.

• Specific population: The study involved 196 low-income people in Singapore who received assistance through a particular charitable debt-relief programme. The findings may not generalise to all people with debt or to other financial and social settings.
• Quasi-experimental design: The researchers used variation in how debt relief was structured to strengthen their analysis. However, this was not a conventional randomised controlled trial, so the results should be interpreted in light of the study design and its assumptions.
• Limited follow-up: Participants were reassessed three months after debt relief. The study cannot tell us whether the improvements persisted over longer periods.
• Specific cognitive measures: The study examined performance on particular cognitive tasks. It did not measure every aspect of cognition, intelligence, work performance or everyday functioning.
• Not every outcome was linked to account clearance: The number of accounts cleared was associated with cognitive functioning, anxiety symptoms and present bias, but the main analysis did not find a statistically significant relationship with risk aversion.
• Mechanism remains a hypothesis: Mental accounting and cognitive bandwidth offer a plausible explanation for the results, but the findings do not prove that this mechanism is solely responsible for the observed changes.

These limitations do not negate the findings. They help define what the research can reasonably tell us: in this group, the structure of debt relief was associated with meaningful differences in several measures of psychological and cognitive functioning.

Frequently asked questions

Can debt affect cognitive functioning?

This study found that clearing additional debt accounts was associated with better performance on a combined measure of cognitive functioning. It supports the possibility that managing persistent debt can place demands on attention and cognitive control, but it does not mean that everyone with debt will experience measurable cognitive impairment.

Why might having several debts be more stressful than having one?

Multiple debts can involve separate creditors, balances, repayment dates, interest rates and consequences for missed payments. Keeping track of these obligations may create additional mental demands. The researchers proposed that these mental-accounting costs may help explain their findings.

Did debt relief reduce anxiety?

The proportion of participants exhibiting anxiety symptoms decreased from about 78% before debt relief to 53% afterwards. Clearing additional accounts was also associated with a lower likelihood of anxiety symptoms. These were group-level findings, not a guarantee that debt relief will resolve anxiety for every individual.

Does one-quarter of a standard deviation mean intelligence improved by 25%?

No. A quarter of a standard deviation describes the size of the change relative to the variability of the measured scores. It does not mean that intelligence increased by 25%, nor does it represent a 25% improvement in every cognitive ability.

Does the study show that the amount of debt does not matter?

No. The study found that the number of accounts cleared was associated with several outcomes even after accounting for the amount of debt relief. That suggests debt structure may matter, but it does not establish that the total amount owed, interest costs or repayment obligations are unimportant.

Should people consolidate their debts?

The study does not establish that debt consolidation is always beneficial. Consolidation may simplify repayments in some circumstances, but it can also involve fees, different interest rates or longer repayment periods. Any decision should be based on the person's full financial circumstances and the actual terms available to them.

Can the findings be applied to everyone experiencing debt?

Not with certainty. The study examined a specific group of low-income participants in Singapore who received debt relief through a charitable programme. More research would help establish how well the findings generalise to other populations and financial settings.

Conclusion: Debt may carry a mental cost as well as a financial one

This 2019 study offers evidence that chronic debt may affect more than financial security. Among 196 low-income participants in Singapore, clearing additional debt accounts was associated with better cognitive task performance, fewer anxiety symptoms and reduced present bias.

The findings are especially interesting because the associations with the number of accounts cleared remained after the researchers accounted for the amount of debt relief. This suggests that the complexity of managing multiple obligations may be part of the psychological burden of debt.

However, the study has important limits. It does not show that the total amount owed is irrelevant, that all forms of debt relief produce the same results, or that every aspect of decision-making improves when debt accounts are cleared.

Original research