Home > 2014 > Managing Debt

What Do Debt-Free Americans Have in Common?

Advertiser Disclosure Comments 0 Comments

People without debt are all in on a secret, right?

Not really. Other than their minimal or nonexistent debt loads, these Americans don’t have a lot in common: Their ages, incomes, locations, genders and education levels are all over the place, according to Credit.com’s recent survey Americans and Credit Card Debt.

Looking at respondents with less than $1,000 in outstanding credit card debt, there aren’t any definitive characteristics of debt-free Americans, but there are some trends worth noting.

More than half of the 2,227 survey respondents said they had no debt or less than $1,000 of it, and just like most of the people included in this sample, the primary reason they gave for the credit card debt they do have is insufficient income.

So what sets these nearly debt-free Americans apart from the rest?

Fewer Credit Cards

When compared to the entire sample, those with little or no debt had fewer credit cards. It makes sense that if you have fewer cards, you may not rack up as much debt — there’s less temptation, and there’s likely less available credit to spend, too.

“That could either [mean] they’re more conservative about their spending, or they have less access to credit,” says Gerri Detweiler, Credit.com’s director of consumer education.

About a quarter of this low- or no-debt group said they don’t have any credit cards, but just as many said they had between three and five cards. Twenty-two percent said they had one. In the entire survey, three-to-five was the most common number of cards, with 33% of people giving that answer.

Keep in mind that debt use (aka credit utilization) makes up a significant portion of your credit scores, so the lower your outstanding debt relative to your available credit, the better. When it comes to credit scoring, then, $500 of credit card debt doesn’t mean the same for everyone. It’s considered a lot of debt for a person with a $1,000 credit limit, but for someone with a total limit of $20,000, it’s considered to be very little. So even though these respondents don’t have a lot of debt when it comes to dollar amount, it doesn’t necessarily mean they have great credit.

Keep a Budget

Budgeting was the No. 1 strategy for paying down debt among all respondents, with 60% of the sample saying that’s what helps them. It’s no different for the people with minimal debt: 60% started budgeting to pay down debt.

What’s more, 48% of them said they have been successful in paying down credit card debt in the past, and 46% have never been in credit card debt at all. If you haven’t jumped on the budgeting bandwagon yet, that’s a good reason to do it. Couple that with a less-is-more strategy when it comes to number of cards, and you may be able to minimize your risk of falling back into credit card debt after you’ve paid it down.

Build Your Credit Without Debt

There was one negative that stood out among the little-or-no-debt group. In response to the question “What is the primary reason you have credit card debt,” respondents said they carried debt to build their credit history. Perhaps the respondents consider using credit cards as carrying debt, even when the balances are paid in full. In that case, yes, this strategy can help your credit.

But there’s a common misconception that you need to carry a balance on credit cards in order to have a good credit score.

“I do hear that comment fairly frequently,” Detweiler said. “It is a fairly common misperception, especially among people who are starting out to build credit or trying to rebuild credit. It can be a waste of money, and it probably won’t have the effect you thought it would have.”

That’s because you have to pay interest on balances you carry across billing cycles (unless you have a promotional 0% financing rate). And the longer you keep outstanding debt, the longer it can affect your credit scores, because that debt increases your credit utilization ratio. It also leaves you with less available credit to use if and when you need it.

You can see how carrying credit card debt impacts your credit scores, because as you pay it down over time, you scores should go up. It’s easy to see how this works by comparing your credit scores periodically, which you can do by using a free tool like Credit.com’s Credit Report Card.

When it comes down to staying out of debt, there’s no secret — it definitely sounds easier than it is, but the key is to get organized, spend within your means and pay your bills on time. Then you can join the less-than-$1,000 debt club. It’s something to work toward.

More on Managing Debt:

Image: norhazlan abu bakar

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team