I know I spend so much time focusing on being debt-free or at least credit card debt free that I sometimes drive myself nuts. And as someone building a business, it is almost a necessity to carry a balance on the business accounts when in the start-up phase unless Debt Freeyou have a truckload of capital to tap into. That’s why this recent headline in SmartMoney caught my eye: “Being Debt-Free Isn’t Always All It’s Cracked Up to Be”.

In the article they point out that most of America is languising in credit card debt. Since 1995 nonmortgage consumer debt has increased 112% to nearly $2.4 trillion, according to the Federal Reserve. Yet, on the flip side of the coin are some die hard debt-free (and I mean entirely debt-free) folks who are up a creek without a paddle when it comes to their credit rating. How could you have a spotless credit record with no debt and “free and clear” living within your means and be a credit risk? That’s exactly the point — you have no track record in the eyes of the credit gods and as a result financial institutions see you as a huge risk because your ability to responsibly handle credit is unknown.

Most lenders consider a consumer with no credit history only slightly less risky than one with bad credit, says Craig Watts, a spokesman for Fair Isaac, the company that creates the almighty FICO score. “Consumers have proven time and again to be creatures of habit,” he explains. “Without some kind of track record, the consumer is a cipher.”

So what’s the solution?

As I see it, the solution to the credit risk problem is to simply build a credit score. Use a credit card even if only for small purchases and pay it off in full each month. It’s not rocket science and unless you have some deep seated fear or moral issue with using credit cards, then why not? The only instance I can think of where it might not be a good idea is if you only recently got back on the wagon after having credit card debt problems (unless you’ve shifted your behavior it might be too tempting to go wild with the plastic). That’s one way to live debt-free AND build a stellar credit rating.
It might actually pay off to have some good debt. Debt that is either tax advantaged or debt that has allowed you to invest in yourself and your personal growth are items that could pay off more than staying debt-free. If you look at the perspective of James Ray in his book “Million Dollar Mindset”, you need to grow as a person before you can actually reap the money rewards that flow from already being successful. In many ways I agree with him. You need to grow your way into a new way of BEING in the world in order to be open to attracting and then handling both psychic (the term he uses for non-monetary wealth) and monetary wealth. Sometimes personal growth takes an up front money investment so this is how it could pay dividends to you later.

Next time you’re building a head of gray hair or freaking out over having to carry a small amount of debt on a temporary basis, remember that being intentional with your money pays far more dividends than obsessing over being entirely debt-free.