What is a Debt Fit Score™? It’s not your credit score—11 factors for healthy debt

As an adult, you're encouraged to eat right and exercise. You schedule regular medical and dental checkups and, if needed, seek counseling for emotional issues. In short, you know all about taking care of yourself—physically and emotionally. 

But what about taking better care of your debt? Here, you'll learn more about debt health and how to improve yours. Let’s walk through how your personal Debt Fit Score could help you identify areas of financial strength and weakness and build your Debt Care™ plan.

What is a Debt Fit Score? 

A Debt Fit Score is a tool that could help you understand your debt situation. It’s a measure (between 0-100) that indicates if you’re in poor, fair or good debt health. The score is calculated based on your answers to a brief series of questions that align with four vital signs of debt health: your debt profile, cash flow, financial risks and goals.

Within each category are the nitty-gritty details—the everyday financial habits and behaviors determining your overall debt health. Your personal Debt Fit Score provides a combined view across those 4 debt vital signs. It could help you identify where your debt situation is in good shape, as well as areas that could use some care and attention.  

Within the four main vital signs, 11 factors make up your Debt Fit Score. These 11 factors help you examine your everyday financial habits and behaviors to determine the role debt plays in your life:

Your debt profile

1. Unsecured debt. This is debt that you take on based on your promise to repay. Most credit cards are unsecured, as are most personal loans and buy now, pay later transactions. If you can’t pay back an unsecured debt, the lender can’t take possession of something you own and sell it to recover their losses. 

Unsecured debt often costs more than secured debt. When you buy a home or a car, that home or car acts as collateral, which is like a safety net for the lender. If you miss payments, the lender can sell the collateral to recover the money you owe. Since unsecured debt is not backed by collateral, it tends to have higher interest rates compared to secured debt.

Too much unsecured debt could make lenders (and you) a little nervous, particularly if these debts make up a large portion of your debt load. 

2. Credit utilization. Your credit utilization is the amount you owe compared to your available credit. If you have a credit card with a spending limit of $2,000 and your balance is $1,000, your utilization is 50%.

If you routinely hit your credit limits, your credit standing is likely to suffer. However, if you only use a small portion of your available credit at a time and you pay it off quickly (or at least steadily), it’s easier to build a stronger credit profile. Also, having low credit utilization shows that you have healthy habits in terms of managing debt. 

3. Time to pay down unsecured debt. How long will it take you to pay down all your unsecured debt? It’s important because the more time it takes to pay debt off, the more interest you'll pay. Plus, the longer you carry unsecured debt, the less money you have to pursue other financial goals. 

Cash flow

4. New expenses. Imagine your child is a phenomenal soccer player. You're as surprised as anyone. She's asked to play on a highly competitive travel soccer team, but you need an extra $250 to cover the team dues, uniform and equipment. If your budget is so tight that you have to go into debt to cover great opportunities (or turn them down altogether), it may be due to a cash flow issue.

5. Negative cash flow. This is when your expenses are greater than your income. If the balance on your primary spending account regularly dips below $50, that’s a difficult situation to be in, and before long, negative cash flow could leave you in a deep hole.

6. How you pay your credit card bills. Credit card bills can be sneaky because the minimum payment is often very low compared to the balance. If you have other important bills to pay, it’s easy to choose to pay less on your credit card bills. The problem is, doing so makes the debt last longer and cost more.  

Financial risks

7. Major unexpected expense. Everyone eventually experiences a major unexpected expense. It's not a matter of if, but when. How prepared do you feel? Could you come up with $5,000 for a major car repair, an unexpected medical bill, or a new furnace? What resources could you rely on to cover it? If you have a rainy day fund or regular savings to help, that puts you in a better position. Or perhaps you could borrow from your retirement savings, your home equity, or even your family or friends. The point is, the more types of help you might have at your disposal, the better your chances are of keeping an unexpected expense from turning into a major financial hardship.

8. Financial hardship. If you feel alone when faced with financial difficulties, don't. Everyone goes through periods of financial hardship. Think of the people you know and all they’ve experienced: divorce, eviction, foreclosure, lost job, car problems, medical issues, bank overdraft fees, legal issues, home repairs, death of a family member, or other hardship. These challenges are part of life. Your ability to handle them financially is another indicator of your debt health.

9. Debt stress. Debt stress is real, and you should never underestimate the impact it could have on your life. Not only might debt impact your physical health, but it could also play havoc with your mental health, stress levels, quality of sleep, and relationships. It could even impact your focus at work, adding another layer of challenge to an already demanding situation.

Yes, the level of debt stress you carry plays a role in your overall Debt Fit Score, but remember: You are not your debt. You are not the money you earn. Financial situations are temporary, no matter how permanent they feel. Not only can you get through this, you can thrive. Even better, you could be in a great position to offer kindness and support to someone else when they face financial risk.

Your goals and behaviors

10. Digital personal finance tools: A big part of debt management is being active in your overall money management. The right budgeting app, for example, could help you understand where your money’s going and how to save more. Good budgeting tools put you in the driver's seat, helping you make immediate, informed decisions based on hard numbers. Also, using online bill pay to pay your bills and debts each month could help you make sure you never miss a payment. The more debt and money management tasks you can automate, the better.

11. Path to homeownership: Finally, homeownership is a major life goal for many Americans. One of the greatest benefits to homeownership is the ability to build equity. Home equity is the difference between your home’s current value and the amount you owe on your mortgage. If your home’s value is $500,000 and you owe $200,000, you have $300,000 in equity. 

You build equity through the combination of paying down your mortgage every month and increases to the market value of your home.

As your equity grows, it becomes available to use to finance other goals—and that can help you build wealth. 

What's your debt health?

As you read through these factors, did you get a sense of your personal debt health? If you noticed things that could be better, that's great! Identifying those factors could help you optimize your debt. 

Poor debt health warning signs

• High debt levels or high credit utilization, with little available cash

• Living paycheck-to-paycheck and carrying credit card balances

• High risk of experiencing significant financial hardship in the event of an emergency

• Debt stress is taking a physical or emotional toll on you

• Homeownership and other major financial goals seem out of reach

Even if some of these apply to you, you’re not stuck. You can take action to improve your debt health. 

Fair debt health 

• Your debt may not be at an emergency level, but it's not where you want it to be, either. 

• You may have more unsecured debt than you'd like, or you want to lower your credit utilization level.

• Your cash flow is sometimes an issue.

• When an emergency strikes, you may have some options for finding the money you need. That may be thanks to a friend, personal loan, credit card, or other easily accessible source.

If you’re here, you’re close to the next level. Keep moving forward by continuing to improve your debt situation.

Good debt health 

• You've got debt under control.

• You have plenty of resources to draw on in case of an emergency.

• You're nailing money management.

• You’re considering buying a home or stepping into your next home. 

• You have clear financial goals in your sights. 

If this describes you, congratulations! You’re slaying it. But that doesn’t mean you can sit back and relax. Maintaining healthy debt habits and reaching goals is a lifelong process that requires a mindful approach.

What’s next? Get your personal Debt Fit Score

What's important is what you do next. First, find out where you stand. Take the Debt Fit™ quiz now to get your Debt Fit Score. 

Depending on your debt health, here are several ideas.

• If your Debt Fit Score is poor (0-33), it's time for an overhaul. The first thing to focus on is getting unhealthy debt under control. If you can afford to repay your debts, use the Achieve GOOD™ app to create a personalized debt payoff plan. If you can’t, you might need to consider bigger debt solutions, like debt resolution. Resolving debts is the process of negotiating with creditors to accept less than the full amount you owe, but consider the debt paid in full. 

• If your Debt Fit Score is fair (34-66), debt consolidation could help you simplify your finances, free up cash flow, lower the cost of your debts, or some combination of those. 

• If your Debt Fit Score is good (67-100), congratulate yourself on a job well done. It could be time to consider your next goal and plan for how you’ll pay for it. Keep paying close attention to your finances. One way to do that is to use the Achieve MoLO app to see all your accounts in one place, keep tabs on credit utilization, and monitor your credit score.