3 Reasons Being Debt-Free is Not Always a Good Thing

If you have accumulated a lot of debt over the years, the thought of being debt-free is probably pretty enticing. You dream about the day that you can cut up the credit cards and forget about making monthly payments. If you are wealthy beyond reason, than this is probably a good thing to do. However, if you are not wealthy yet, being debt-free could actually be a detriment to you. Here are a few reasons that being debt-free is not always a good thing. 

Reason 1 - Hurts Your Credit

One overlooked aspect of being debt free is that it hurts your chances of getting credit. A problem that young people often have is that they can not get a loan because they do not have any credit. You have to use credit in order to get more of it. This can be done by getting a credit card, charging something, and then paying off the bill. However, if you never get a credit card or some other type of loan and pay it off, future lenders will not have a payment history to go by. They will look at you as a bigger credit risk than someone who has dealt with credit cards for years. If you've never had a credit card, then you do not know how to handle credit yet. Therefore, being debt-free in that sense can hurt you financially.

Reason 2 - Costs You Money

Being debt-free is not a good thing whenever you can do better things with the money required to pay off your debts. Paying off low-interest debt can actually hurt your future financial standing. Let's say that you have a student loan with 3% interest. The debt is $30,000 and you come upon a lump sum of $30,000. You decide to pay off the debt all at once even though you had another 10 years to pay it off. Think about all of the money you just threw away in interest. If you would have taken the $30,000 and invested it, you probably could have received a higher return than 3% on the interest. At the end of 10 years, you would have no debt and $30,000 plus interest in the bank. Paying off the low interest debt might sound attractive, but in reality it can hurt your future chances. 

Reason 3 - Taking Drastic Measures

Many people think that being debt-free would be fantastic. However, when you have to take drastic measures in order to get there, it probably is not worth it. For example, if you are deep in debt, you might think about filing bankruptcy to help eliminate the debt. However, the damage that it can do to your credit is much worse than if you would have just toughed it out. A bankruptcy will stay on your record for at least 10 years. That is a big hit to take on your credit. You do not have any idea what your life will be like in 10 years. Therefore, you should not damage it before you get there. 


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