How much does a debt spiral cost?

Poland’s debt-spiral risk is concentrated in short-term non-bank lending, where borrowers can become trapped in repeated refinancing. Among loans issued for up to 60 days last year, two-thirds effectively served as refinancing. Almost one in four customers fell into arrears of more than 90 days within a year.

The contrast with bank-only customers is stark. Fewer than 6% of people using only the banking sector had delays of more than 90 days, compared with 37% among customers of loan companies alone. These arrears also tend to persist: only 1.4% of customers with arrears exceeding 90 days returned to a position without delays the following month.

More than one-third of Polish households lack enough savings to absorb even a short-term loss of income or rise in spending. That leaves them more exposed to a debt spiral, whose costs extend well beyond the loss of financial liquidity.

The best-documented individual cost is worsening mental health. People struggling to repay debts face about twice the risk of depression and anxiety disorders. Chronic stress, fear of insolvency and pressure from creditors and debt collectors can also damage physical health and family life. Marital conflicts may lead to divorce, with particularly harmful effects on younger children and lower-income families.

Debt problems can deepen social and financial exclusion. Borrowers with poor credit histories may lose access to cheaper bank loans and be pushed toward high-cost non-bank lending, increasing the risk of further arrears. Entries in economic-information databases can also make it harder to obtain telecommunications services, rent housing or secure some forms of employment. The article puts the overall cost of the debt spiral at between 1 billion and 7 billion zlotys.