Other nations like the UK have implemented a variety of measures to reduce the impact of the COVID-19 virus on people’s economic situations. While we’re aware that these plans helped households with their financial well-being and helped with household finances, we are getting to know the impact they had on the mental health of people.
For example, a 2022 study revealed that the COVID job-retention scheme (furlough) safeguarded workers from a mental decline in their health caused by losing their jobs.
One aspect that was little studied until recently is payment deferral programs, sometimes referred to as “payment holidays.” The results of our recent research suggest that these strategies have also helped reduce the psychological effects of debt among those who took advantage of these schemes.
The government first announced that mortgage lenders would support customers facing financial difficulties due to COVID by granting payment holidays in March 2020. The scheme was then extended to other forms of unsecured credit (such as credit cards, personal loans, and payday loans), which we refer to here as “credit holidays.”
The credit holidays, which were available through July 2021, permitted customers to postpone their due date for three months, which was later extended by six more months from November 2020 without being considered arrears. Another advantage of COVID credit holidays was that COVID credit holidays was the fact that they didn’t appear on the applicant’s credit reports and thus did not affect their credit scores.
Examining the impact of COVID-era measures like these is relevant outside of the scope of the pandemic, which could help determine future policies.
In our study, we concentrated on the link between credit holidays and mental health among the UK population, using information from a longitudinal study called The Study of Understanding the Society. Study.
We gathered information about the unsecured debts of people and their receiving credit holidays during three points in the outbreak (November 2020 and March 2021, as well as April 2021), with an average of approximately 11,500 respondents at each of the three points. Data regarding mental health was collected at every moment using a tool known as the general health questionnaire, which graded people on a scale ranging from zero to 36 (36 representing the worst physical health).
We accounted for a range of factors that could influence our findings that could have influenced our results, such as pre-pandemic financial burden and mental health prior to the outbreak. We were able to concentrate on whether the connection between debt and mental health changed throughout the pandemic.
Our findings show that an average of percent of the British population reported having debts that were not secured during the time of the pandemic, compared to 31% in the year 2018. This suggests that the pandemic did, in fact, not increase personal debt. However, it did cause greater difficulty in repaying them.
A total of 9.5 percent of those who reported non-secured debts reported that they had taken advantage of the credit holiday program. In all, around 4 percent of the UK population benefited from credit holidays.
Holidays for credit, delinquency, and mental health
The research conducted prior to the COVID-19 pandemic showed a clear connection between depression and mental illness.
The results showed that, when compared with those with no unsecured debts and no credit holidays, those with insecure debts and who did not have a credit holiday were significantly less healthy in mental health. This translates to an average of an average score of 0.26 units higher on the overall medical questionnaire, which indicates higher mental anxiety.
However, those with unsecured debts who took advantage of credit holidays reported better mental health results. Their scores were reduced to an average of 1.16 units when compared to those who had none of their debts secured or no credit holidays.
Women are particularly susceptible.
If we look at the gender differences between those categories, we observe the same patterns of associations. However, the negative consequences of the burden of debt in relation to mental well-being- were significantly prominent in women.
This isn’t a surprise since studies have demonstrated that women are disproportionately affected by debt as they tend to be most inclined to be in debt over the limit (where debts are greater than income) and suffer from stress related to debt. Also, women are at higher risk of having poor mental health during the pandemic.
Overall, our results show that uptake of the credit payment holiday scheme by borrowers led to significant improvements in mental health scores compared to other borrowers. The magnitude of this difference suggests potentially substantial health benefits.
With the uneven and rising rate of household and personal debt due to COVID, continuing rising cost of living crises, and the increasing costs for borrowing, our findings suggest that government-approved credit-payday holidays shouldn’t be considered an “unprecedented” option only to combat worldwide pandemics. They could instead be an ongoing policy tool that can help reduce the mental health risks of unsecured debt, especially for women.