In the personal finance community, it’s best to be out of debt. Without a question, I would rather be $20,000 richer and not have to worry about my student loans. Still, there are several advantages to being in debt:
1. Boost Your Credit Score – When you are building your way out of debt and making your car loan, student loans, and credit cards payments on time, you are improving your credit score. In the short term, being in debt may cost you in interest, but in the long run, you may save thousands by having that good credit score when you get a mortgage.
2. Tax Deductions – Student loans and mortgages are tax deductible, and can lower your overall tax bill. So in addition to owning a home and having a college education, we can take solace that the tax bill won’t be quite as high.
3. You’ll Learn Great Lessons About Personal Finance – When you don’t have to worry about your finances, you don’t worry much about managing them. Once you become responsible for your finances, you realize just how much it is costing you and try and avoid it at all costs. Those who are in debt learn quickly from the experience and are better off afterward.
I don’t advocate being in debt to collect on any of these benefits, but I include it in the reasons why I’m ok with being in debt and why I am saving instead of aggressively paying off my student loans.