3 Benefits of Debt

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.

3 Benefits of Debt

Sweating the Big Stuff

8 thoughts on “3 Benefits of Debt

  1. Daniel, nice to think about what we learn from being in debt. I’ve learned my lesson though and am ready to move on to the next stage. Unfortunately, it’ll take more time.

    1. Ha, I definitely agree. Maybe a small taste is nice, but sometimes it would be nice to wipe the slate clean and start over. You know you won’t make the same mistakes again.

  2. So true. I’ve learned so many of my finance lessons the hard way, but I’m a visceral learner. I need to experience my action/reaction first hand in order to commit it to memory then learn from it.

    1. I also learn by experience. You can tell me 1,000 times, but I like to know firsthand what effect it will have. I have to see it to believe it.

  3. Interestingly enough, people who have at least $1 of debt on their credit cards (not necessarily a balance, mind you, but could be revolving) statistically have much better credit scores than those with $0 balances (I think this was according to MyFico).

    Probably has something to do with the on-time payments, responsible credit use, etc, etc…

    1. That definitely makes sense because you need credit to build your score. I wonder what it’s like for those who have missed a payment or two and compared those people who those with $0 balances.

  4. However, the 25c one saves in taxes by paying $1 in interest to the lender is like a band aid is to a knife wound.

    1. @Early Retirement Extreme, agreed. Recommending debt as a tool to learn about financial management is one of the dumbest things I’ve read in a long time…

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