Wanna know a surprising secret? Despite Switzerland having low government debt compared to other countries, Swiss households have some of the highest debts in the world. Here are some insights:
  • 11.5% of Swiss households are behind on at least one payment, with critical life events, unemployment, and the high cost of healthcare being the main causes.
  • Top debt sources: Taxes, health insurance, and healthcare costs are the three largest debt traps.
  • Financial setbacks like salary garnishment and the complexity of personal bankruptcy worsen the situation for many people affected by debt.
  • Debt advisors offer indispensable support by helping affected people to better understand their options and find various solutions.
  • Good debt vs. bad debt: This financial theory is a method of categorising debt that highlights the difference between productive debt facilitating long-term goals and consumer debt that fails to benefit your financial growth.
What comes to mind when you think about Switzerland? Chocolate, mountains, cheese – right? According to statistics, the list should include debt. … What? In such a wealthy country? Yes, you’ve read that right. Despite being a role model when it comes to government debt, the private household debt rate is one of the highest in the world. And it keeps rising.
We’ll give you a minute to glance at your bank statements, then we’ll get started on our deep dive. Ready? Ok, let’s go. This is the first part of our 3-part series of articles, in which we’ll talk about the following difficult subject: what actually is debt, and how is debt dealt with in Switzerland?

What is debt and how does someone find themselves in a debt trap?

Debt vs. indebtedness vs. overextension
Let’s start with a clear definition by diving deeper into the concept of debt. If you’re thinking that debt is something you’ll never need to worry about, we have some worrying insights on how easy it can be to slip into debt. This isn’t a banal subject only for financial analysts to ponder, but a topic that can affect everybody – yes, even you there, thinking about splurging on a slick new smart watch.
Let’s toss this word salad a little bit first. Debt isn’t the same as indebtedness and overextension. The word «debt» basically means that someone is «obliged to make a payment,» and in our specific case, it means «owing somebody something,» i.e., having to return (lent) money. If you ask your trusted banker what debt is, they will say that it is the financial obligation of a debtor to their creditor. That could be credit, outstanding bills, or – of course – tax liability. From this perspective, every person with a mortgage or a credit card has debt, and they usually pay it off month by month.
Indebtedness basically means the same as «having debt,» but there is a connotation of excessive financial burden. However, debt and indebtedness aren’t really a concern, as long as the monthly budget allows for the payments.
The transition into overextension happens once the outflow of money is suddenly higher than the inflow. Then the drama begins. Overextension is the demon of the finance world. Once you’re in its grip, it doesn’t let go easily. In today’s economy, where anything we could dream of is just one click away, this can happen at a frightfully high speed. An unexpected loss of employment, a costly divorce, a long-term sickness, and before you know it, you’re operating in the red.

The Swiss debt landscape: a snapshot

«Swiss Debt Landscape» might sound like the title of a beautiful oil masterpiece with mountains and grazing cows, but the picture we’re painting today looks quite different. According to the Swiss Federal Statistical Office, in 2021 every 8th person (11.5%) lived in a household that was in payment arrears, and 5% of people were in arrears for at least two kinds of debt. The credit bureau CRIF states that about 542’794 Swiss residents were stuck in a debt spiral in 2023 – that’s 6% of the population. Furthermore, the number of debt collections is growing, with more and more people no longer able to afford their bills.
The umbrella organisation of advisory services for debtors in Switzerland, Schuldenberatung Schweiz, last published an annual report in June 2023. In it, they explain how those aged 30–49 are the largest number of people affected, and most of them are either living alone or are single parents.
The report also shows that two thirds of all people affected have financial debts that equal a year’s worth of their income, with the average amount being around 67’000 CHF. One third of people owe more than one year’s worth of their income. Roughly 8% are in debt to the tune of three years’ worth of their income.

The most common reason?

The stereotype that most debtors live a luxurious lifestyle way above their means, and therefore have made their own bed and must lie in it, is more often the exception than the rule, according to statistics provided by Schuldenberatung Schweiz. Shopping and gambling addictions are rare reasons for debt, totalling only 7%. More often than not, the actual reasons are challenging life events (separation, unemployment, health issues, etc.), combined with difficulty keeping up with life admin (such as filing paperwork on time, keeping on top of bill payments, etc.) and the working poor with low income or unstable employment falling below the poverty line. For young people, moving out of a parent’s house often leads to debt. Statistics show a 70-fold increase in debt collections after a young person reaches legal adulthood.

And the biggest debt trap?

Back taxes, health insurance, and healthcare costs are at the top of the list, closely followed by cash loans and credit cards. While the largest amounts of debt are related to taxes, health insurance is the number one reason for debt collection. Up until this year, young people had the additional burden of inheriting their parents’ health insurance debt when they turned 18 years old, but thankfully, this federal law has now been overturned. Overall, though, the message remains that many of us can end up in a situation where our monthly expenses are higher than our income. Once you find yourself in that debt spiral, it can be hard to get out.
But it’s not all doom and gloom! Switzerland has a variety of counselling centres and organisations that help support people in financial trouble. They offer valuable resources and guidance to find a way out of a debt trap. But before we go into more detail, let’s dive a bit deeper into why so many people end up in this situation.

Good debt vs. bad debt: the subtle distinction

The good debt pays off, the bad debt gives payback
If the mere thought of debt sends a shiver down your spine and makes you want to clutch your credit cards closer, that’s understandable. In an ideal world, we’d all have enough capital to avoid debt completely. But the concept of «good debt» involves any loan that can help you to reach monetary goals or offer potential financial benefits in the long term. These investment debts can generate an additional financial value in the form of income and wealth growth for you. Most of them have low interest rates due to the increasing value of the investment.
«Bad debt,» on the other hand, arises from the consumption of non-essential goods or services and short-term expenses. These can put your finances – and your peace of mind – under unnecessary strain with high interest rates, so you should avoid them, or at least limit them.

The good ones

  • Student loans: They usually help you to achieve better professional qualifications and increase your chances of netting a higher income.
  • Real estate loans: Despite the owner having to make monthly mortgage payments, real estate tends to increase in value and can offer long-term financial stability.
  • Business loans: These have similar benefits to student loans, since they can help you generate more income and offer growth potential. For these reasons, they can be profitable in the longer term.

The troublemakers

  • Credit card debt: If you overspend on your credit card and don’t settle the monthly bills, the high interest rates can lead you straight into a debt spiral.
  • Short-term consumer credit: A vacation in the Maldives? An expensive new smart phone? If you take on credit for treats like this, they are unlikely to offer any long-term financial value and can lead to a debt dead end. Expensive products can lose significant value after only a short amount of time – for example, a brand-new car loses up to 25% of its original value in the first year alone.
  • Instalment payments: Sounds tempting, doesn’t it? You buy yourself a stunning designer wardrobe and pay in instalments. An option, sure, but once again the devil is in the – er, high interest rates. Posh purchases like these can push you into a lifestyle that’s above your means.
  • Overdraft: These also belong in the «bad guys» category. First, the overdraft fees tend to be shockingly high for most banks, and secondly, living in the red tends to bleed into other areas of your finances, causing a ripple effect.

Where to go for help? Support to find your way out of debt

Once the vulture of debt has spotted its next meal, it’s hard to shake it off. The sad reality in Switzerland, a country where personal responsibility is highly valued, is that getting out of debt and completing all payments is not as simple as it seems. Regardless of how you got trapped in the debt spiral, the system is partly to blame.
Distraint (taking and selling someone’s goods to pay off debt) is a good example: if your property or wages are seized, you may be on the breadline, but your taxes won’t be calculated on that poverty level. According to mathematician Adam Ries, it is therefore impossible to settle them. Doesn’t really make sense, does it?
So you decide to declare personal bankruptcy. But with that comes a load of obstacles, according to the Swiss Debt Enforcement and Bankruptcy Law. This can lead to those affected drowning under the burden of chronic debt, having to live their entire lives on the poverty line. There is urgent need for legislators to take action. The most effective restructuring procedure would be the discharge of residual debt, a concept foreign to Switzerland. With that, people could have a second chance and a fresh start.

Advisory services for debtors: the first step to financial freedom

If you’re trying to chop your way through an overgrowth of debt but can’t find your way out on your own, advisory services for debtors can be a great place to go for assistance. Qualified specialists help you by creating a clear outline of your current situation and showing you the possibilities. Working with you, they’ll come up with an individual plan to help you become debt-free. You can find the hotline number and a list of counselling centres for each canton on the website schulden.ch (German-speaking Switzerland) or dettes.ch (Romandy).

Debt prevention: better smart than sorry

After exploring the details of debt and how it happens, let’s talk actual solutions. How do you navigate the complex challenges of debt management in Switzerland? No worries, we’re here to help. We’ve compiled various tips and strategies that will not only help you to stay afloat financially, but will also show you how to save money in the long run. Keep your eyes peeled for part two of this series, which will look at budgeting and financial planning, and of course part three will answer the burning question of how to get out of debt. The goal isn’t just to keep you out of debt, but to help you live a financially healthy and low-stress life. Isn’t that something we all deserve?