Living Debt-Free: This Is What It’s Like to Have No Credit Card Debt

visa and mastercard logos
Only 9% of Credit Sesame users didn’t carry a balance on their credit cards. | Justin Sullivan/Getty Images

Americans are living in the red to the tune of almost $1 trillion. That’s how much we collectively could owe on our credit cards by the end of 2017, according to an analysis by financial website WalletHub. In fact, we’ve managed to work our way back up to levels of debt similar to those seen at the end of 2008, just as the Great Recession was walloping American budgets.
The $940 billion Americans owe Visa, Mastercard, and American Express works out to a tab of $8,038 per U.S. household, WalletHub calculated. But not everyone is drowning in debt. Some people are able to use their credit cards responsibly, it turns out.
Credit score website Credit Sesame recently compared its members who have credit card debt to those who have credit cards but carry a $0 balance. What it discovered was pretty striking. The people who resisted running up credit card debt seemed to have a healthier financial picture overall, with smaller balances on many other types of loans, such as car loans and mortgages, higher credit scores, and fewer open card accounts.
Zero-balance credit users are a pretty rare breed though. Only 9% of Credit Sesame users didn’t carry a balance on their cards. That makes us wonder: What are these debt-free people doing differently from the majority of Americans, and what could they teach the less fiscally responsible among us about managing credit? Let’s dig into the data to find out.

1. They have less debt overall

How do people erase debt? |

The biggest — and not terribly shocking — revelation from the Credit Sesame survey was this: People who don’t have credit card debt also have lower amounts of other debt.
Compared to people without credit card debt, people carrying a balance on their cards have:

  • 11% higher balances on their mortgage: $179,065 versus $198,264
  • 18% higher balances on their home equity loans: $45,637 versus $54,013
  • 30% higher balances on their car loans: $15,305 versus $19,932
  • 52% higher balances on their student loans: $25,118 versus $38,194
  • 135% higher unsecured consumer loan balances: $2,986 versus $7,023

Those with zero-balance credit card accounts aren’t eschewing debt entirely. They get loans for cars, houses, and a college education. But they either borrow less, or they’re more aggressive about paying off what they owe than other borrowers. They also create a situation where it’s a little harder to rack up debt in the first place. Read on to discover the smart money move of the debt-free.

2. They have fewer credit cards

woman choose one credit card from many
People who don’t carry balances on their credit cards have fewer cards than those who do have debt. |

If you have absolutely no credit card debt, chances are your wallet is a bit lighter than that of your debt-carrying friends. But it’s not because you have less money. It’s because you’re carrying around fewer pieces of plastic. The zero-debt crowd has two credit cards on average, compared to the three held by those in debt.
Having multiple credit cards isn’t necessarily a bad thing. Keeping more than one credit card open can actually help your credit score by improving your utilization ratio. Other people don’t close old credit card accounts, so they can show they have a long credit history, another factor in calculating credit scores. Some use different cards for different types of spending.
The problem arises, however, when you see having multiple credit cards as an invitation to spend. Having fewer cards might help debt-free individuals avoid falling into the trap of spending more than they can afford. Being cautious about using plastic has some big benefits, as we’ll see.

3. They have higher credit scores

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People who don’t have credit card debt have higher credit scores than those who do. |

No surprise here. People with no credit card debt have higher average credit scores than people who do carry debt — 709 versus 640. That’s the difference between a good credit score and a poor one, according to Credit Sesame. (Credit scores typically range from about 300 to 850, depending on the scoring model.)
Having a higher credit score doesn’t just give you bragging rights. It also means easier access to credit and at lower rates than those with less impressive scores. That, in turn, could save you big money when it comes time to buy a house or a car. It can even make it easier to get a great deal on a new cellphone. A good credit score also means the freedom to buy more with your credit cards, even if you don’t take advantage of it, as we’ll see on the next page.

4. They have higher-than-average credit limits

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How high is your credit limit? | Joe Raedle/Getty Images

What’s the reward for having no credit card debt? A higher-than-average limit on your credit cards. Yes, in exchange for not carrying a balance on your cards, credit card companies dangle even more available credit in front of you. Cards that have a $0 balance have an average spending limit of $5,353, compared to $3,920 for cards with a balance.
Having a higher credit card limit might not seem like a big deal if you don’t carry a balance, but it has some advantages. For one, it lowers your utilization ratio, which is a plus if you frequently use your cards, even if you pay off what you owe promptly. That’s because your card issuer could be looking at your overall utilization before you pay your balance at the end of the billing cycle. A high limit can also be useful in emergencies when it’s hard to access cash, such as when you’re traveling, and it also makes it easier to earn rewards.
Ready to join the elite ranks of those with zero credit card debt? Keep reading to find out how.

Taming the credit card beast

credit cards over grey background
How do you become debt-free? |

Lower overall debt, higher credit card limits, and an envy-worthy credit score — life with a $0 credit card balance definitely looks pretty sweet. But now comes the big question: How do you get there? With discipline and financial smarts. Here are three things you can do to become a debt-free credit card user.

1. Start an emergency fund

People with zero credit debt might use their credit cards in an emergency, but they don’t do so if they don’t have the cash on hand to pay the bill promptly. They know relying on plastic to cover unexpected expenses is a fast path to crippling debt. Chances are they’re among the 48% of Americans who have enough cash in the bank to cover at least three months of living expenses should things start to go south.
To build your emergency fund, cut back on extras and make savings automatic. Even if you must start small, you’ll be thankful to have a few hundred dollars on hand the next time you’re facing an unexpected bill.
Next: Save before you splurge.

2. Save for big expenses

buying online with a credit card
A man makes an online purchase with a credit card. |

Sure, you could pay for that long weekend in Cozumel with plastic or whip out your card to pay for your kid’s summer camp tuition. You’ll figure out how to budget for everything later, right? Wrong. The debt-free crowd plans first and pays later. They’re the ones making regular contributions to their vacation fund and figuring a child’s extracurricular expenses into their budget well in advance. They might be a little less spontaneous with their spending, but their restraint pays off in a big way.
Next: Never pay another late fee again.

3. Pay your bills on time — and in full

account statement
Avoid seeing late fees. | Jeff J Mitchell/Getty Images

Raise your hand if you’ve ever been hit with a late payment charge on your credit card. Such fees sting, as does the interest rate hike that often accompanies a missed bill. You can bet those in the debt-free crowd don’t see those fees on their statements. They keep a close eye on their credit card bills and make sure to pay their balance in full every month.
Starting each billing cycle with a clean slate means you’ll never have to pay a late fee again. Plus, you won’t have to contend with the double-digit interest that can quickly turn what seemed like a manageable debt into a massive financial burden.