The price of peace of mind: The credit card debt puzzle, precautionary savings, and financial stress

Do individuals who co-hold credit card debts and savings experience higher or lower levels of financial stress than others? Analyzing the results of a survey of U.S. residents, this study shows that when individuals co-hold debts and savings that may be insufficient to handle emergencies, they experience higher stress levels than those, who have neither debts nor savings. However, when individuals have debts and emergency savings, they experience lower stress levels than those who have neither. In particular, co-holding debt and emergency savings is significantly related to reduced appraisals of lack of money and control. Furthermore, reduced stress occurs in financially-resilient individuals, even if they have credit card debt. These results suggest that co-holding could be psychologically maladaptive when precautionary savings are unavailable, but is associated with lowered stress levels when they are on hand.