The fear factor

"I was chucking letters from debt-collection agencies into the bin because I just couldn't face them, and the letters they were sending were so threatening that I was genuinely scared. You try and put it out of your mind but it's always there, gnawing at you. You try to ignore it, but the problem just gets bigger."

Although she was studying for a postgraduate degree, Sarah became so overwhelmed by her money worries that she chucked in her studies just three months into the course and moved back home to live with her parents.

"I stopped sleeping. I got to the point where I didn't sleep for three days. I was on the verge of tears all the time and I couldn't cope. I felt like I was losing my mind, but I didn't really know about anxiety and I thought that if I told anyone they'd think I was crazy."

Too scared to go to her GP – "I was worried it would go on my medical record," she says – she kept her problems to herself. "I know now that I was suffering from anxiety. I had heart palpitations, I was crying constantly and couldn't stop worrying. It was awful. I got to a point where suicide crossed my mind because I thought I couldn't deal with the situation."

Finally, she decided she had to try and help herself out of this state of anxiety and the debt that caused it. "I started practising yoga every day, which really helped me to relax, and inhaling lavender essential oil which was also good for calming me down." Calmer, she was also able to speak to the Consumer Credit Counselling Service, which arranged for her to start paying off each of her debts at just 1 a month. Five years on, although she is still paying back her debt, at 28 she no longer suffers from anxiety.

"It lifted a huge weight off my shoulders. Although I'm still paying the debt back it doesn't bother me at all now. If it takes 20 years to pay back, I don't care."

If Sarah's story sounds unusual, it's not. With the days of economic boom behind us, the number of people suffering from anxiety, depression and other mental health problems as a result of money worries and the recession are on the increase. A report published this week by the Mental Health Foundation, as part of Mental Health Action Week, states that two-thirds of Britons are experiencing some degree of fear and anxiety as a result of the financial crisis.

"There are clear links between debt, unemployment and mental health problems," says Celia Richardson of the Mental Health Foundation. "The recession is having an effect on the nation's mental health, and it (will increase] as time goes on. This is going to get worse before it gets better."

Last month, the Scottish mental-health charity SAMH also warned that the economic downturn would have "serious consequences" for the nation's mental health. "Many people in Scotland may be experiencing problems with their mental health for the first time, and we believe this is related to the tough financial times people are facing," says Billy Watson, chief executive of SAMH.

Meanwhile Anxiety UK, which deals with a range of anxiety disorders, has seen a huge upsurge in the number of those looking for advice: calls to its helpline have doubled since September last year, while there has been an astonishing 400 per cent increase in those e-mailing the charity since January.

"There has been a lot of demand for our services recently," says Catherine O'Neill, Anxiety UK's services manager. "Significantly, a large number of the people we've been in contact with are having their first experience of anxiety because of the threat of being made redundant or a financial problem."

At a time when many companies are making large-scale redundancies – just last week, Royal Bank of Scotland announced 4,500 job losses and one in nine people in the UK are expected to become unemployed this year – and debt is hitting an all time high – personal debt at the end of February 2009 stood at 1,458 billion and a property is being repossessed every ten minutes somewhere in the country – it's no wonder an increasing number of us feel we cannot cope.

So why does redundancy, along with other financial issues, have such an impact on our mental wellbeing?

"When people are going through a negative life event – be it redundancy, divorce, bereavement, money worries or health worries – that can cause anxiety," says Ben Williams, an Edinburgh-based corporate psychologist and redundancy counsellor.

"Some people aren't equipped to cope with that kind of emotional pressure, with the net result that they go into negative emotional states such as rage and anger, down through discontent and sadness all the way to depression. Sometimes that can be a (brief] process but sometimes it can last longer. It depends on the individual and how well they're able to cope with it."

Stewart Murray, 33, has recently been made redundant from his job as a mechanical engineer at a paper mill in Inverurie. He first heard that he may lose his job back in October and, after a long consultation process, will finish on 8 May. He is now desperately looking for a new job.

"I've noticed that every time I speak to somebody, even just in the pub or whatever, I always manage to get the conversation on to the paper mill and the fact that I'm looking for a job. I think the situation is actually more stressful than I realised, because I tend to talk about it an awful lot."

Murray has worked at the mill since he was 17 and never had a job anywhere else.

"It's been drummed into us that we should say 'this is an opportunity', but it's hard. I'm not a very ambitious person; I was quite happy with my job in Inverurie. I'm apprehensive about the future. If I haven't got a new job by the time I finish, if I have a couple of job interviews and they say 'you're not quite what we're looking for', I can see how you could easily fall into a routine of watching TV all day and not doing anything. Your head could really go down."

For many people, there is huge stigma attached to mental health issues, meaning they are less likely to seek help or talk about it because they're worried about the reaction of others. Sarah says a lot of her friends were unsupportive when she suffered severe anxiety as a result of her financial problems.

"I had a friend say to me 'you don't want to go too far down that road or you'll end up in the loony bin', and the thing was, I believed it. It was a real fear. I thought I was going crazy. That's part of the problem when you're anxious: you tend to blow everything out of proportion."

For those who have lost their job, being made redundant can have an impact on their self-worth and sense of identity. "If you've been in a job for most of your working life and you're made redundant it's a massive shock," says Williams. "Some people can be tragically damaged by something like that. It depends on your expectations, how long you've been in the job, future prospects and so forth." Edinburgh-based redundancy counsellor Colin Rorison, who describes his job at the moment as being "like an undertaker during a flu epidemic", goes even further.

"There is an entire generation of people now who have never seen a recession before, and one within HR and line-management that have never been involved in wholesale redundancies. The problem is, they're not doing it well. This means that some people get exceptionally angry with their employers, because the way redundancies are being handled means they're not being afforded dignity or decency. That can have a real impact."

Fortunately, there is help out there and things we can do to improve our mental state. "There are some basic steps to take," says Richardson. "It's important to have some sort of structure and purpose to your day, and to take regular exercise. Talk about your feelings so you're not bottling it up, and if you find you're going round in circles talk to a professional. They can help you challenge negative thoughts."

Although Sarah struggled with her anxiety at the time, looking back she says that in some ways the experience has benefited her. "Even thought it was horrible when I was going through it, it did help me get motivated in terms of other areas of my life. Now I look back at it as a valuable thing. It's during those sorts of times that you learn the most about yourself. If, that is, you're lucky enough to come out the other side."

*Sarah's name has been changed