The Mental Health Toll of Using Alternative Financial Services: A Propensity Score Analysis

Background. Debt is increasingly recognized as a social determinant of health, yet important gaps remain in understanding how specific forms of high-cost borrowing shape mental health. Alternative financial services (AFS), including payday loans, auto title loans, rent-to-own services, and pawnshop lending, are often marketed as short-term solutions for urgent financial needs. However, these products typically involve high fees, short repayment periods, and repayment structures that may intensify financial strain. Although prior research has linked debt burden and financial stress to adverse mental health outcomes, less is known about whether use of AFS is associated with poorer mental health at the population level. This study examined the association between AFS use and self-rated mental health among U.S. adults. By clarifying whether AFS use itself is associated with mental health disadvantage, this study informs financial inclusion policy and population mental health interventions.

Methods. We analyzed cross-sectional data from the 2025 Financial Health Pulse Survey, a national sample of U.S. adults (N = 10,844). The key independent variable was past 12-month use of any AFS product, defined as using payday loans, auto title loans, rent-to-own, or pawnshop lending. The outcome was self-rated mental health, ranging from poor to excellent. We used propensity score matching to reduce confounding. Propensity scores were estimated using a range of sociodemographic and financial characteristics, and users were matched to non-users to create a balanced analytic sample. After nearest-neighbor with caliper matching, we estimated the association between AFS use and self-rated mental health using ordered logistic regression. We also examined whether findings were consistent across sociodemographic subgroups.

Results. Propensity score matching substantially improved covariate balance and yielded a matched sample of 986 respondents, including 493 AFS users and 493 non-users. In the matched sample, AFS use was significantly associated with poorer self-rated mental health. Specifically, AFS users had 1.60 times the odds of reporting worse mental health compared with matched non-users (OR = 1.60, p < .001). Predicted probability estimates further illustrated the pattern: AFS use was associated with lower probabilities of reporting excellent mental health (-0.043) and very good mental health (-0.059), and higher probabilities of reporting good (0.018), fair (0.005), and poor (0.029) mental health. These findings suggest that AFS use is linked to a meaningful downward shift in the distribution of mental health status. The overall pattern remained consistent across sociodemographic subgroups.

Conclusions. AFS use is strongly associated with poorer self-rated mental health, even after balancing observed confounders. These findings suggest that reliance on high-cost, short-term financial products may function as a population-level mental health risk factor. For social work research and practice, the results highlight the importance of addressing financial distress not only as an economic issue but also as a mental health risk factor. Integrating financial capability screening, benefits navigation, and referrals to safe financial products into clinical, behavioral health, and community-based settings may help mitigate risks associated with high-cost debt. Medical-financial partnerships and other cross-sector interventions may be especially promising for addressing the intersection of financial precarity and mental health.