Is It Actually Good to Be Debt-Free?

Is It Actually Good to Be Debt-Free?
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Mike Randall
By: Mike Randall
Posted: July 27, 2013
Experts share their tips and advice daily on BadCredit.org, helping subprime consumers navigate the world of personal finance.

The question of whether it’s a good thing to be debt-free may seem an obvious one to most of us.

But I still get questions all the time about whether the FICO system of credit rating discriminates against those who have no debt. And some people are adamant that it does.

But let’s take a closer look at the evidence and see whether this accusation holds water.

1. You must have good credit history.

Your history should show no late or missed payments.

You also need to show a good ratio of debt to available credit. For those consumers who have no current debt and who have paid their bills on time, both of these qualifications are met.

“The less debt we have, the

more of our money we keep.”

2. You must have had credit at some point.

This applies to almost everyone and certainly to those who are worried about their credit scores. So if you’ve had a credit card or two and have paid down the debt, you are seen as a good credit risk.

If you still have at least one credit card in an active state (something all of us should do, at least for emergencies), then the credit bureaus will rate you high for both credit history and payment history.

These are the two biggest pieces of your credit score mix.

3. You must do other things.

Finally, even for that small percentage of consumers who don’t carry a credit card or other revolving debt, they can still achieve a good credit score by doing other things.

Any type of loan such as a car that has been financed, department store loan for a piece of furniture or a home equity line of credit will be reported to the credit agencies.

Paying these bills on time will result in a positive credit history and a good credit score.

But back to the question of whether or not it’s a good thing to be debt-free. To the extent that it’s even possible in our credit-driven society, having zero debt is a good thing.

Being debt-free has the advantage of removing at least one burden in our over-burdened lives. It also means we get to keep more of our money, rather than paying it to someone else in the form of interest.

Also it gives us more financial flexibility if an unseen emergency does arise.

While it’s not practical or even possible for many of us to live completely debt-free, it is something we should all strive to move toward.

The less debt we have, the more of our money we keep. It’s like giving yourself a cash reward.

Photo source: proirshelp.com.