Household debt imposes heavy economic costs on governments by lowering labour force participation and GDP growth while increasing unemployment, informal work, and social expenditure. Debt melancholy leads to unemployment and mental health illnesses at significantly higher rates than among those without debt, with time and reduced financial burdens needed to break the cycle.
Overly punitive debt collection practices can have a backlash effect, increasing insolvency, poverty risk, and joblessness among over-indebted individuals. Evidence shows that early-stage interventions in debt accrual are more effective and cost-efficient than late-stage measures like bailiff action. Addressing this issue requires systemic solutions, including debt collection reform, debt consultancy, and debt respite programs.
