The repayment of every loan diminishes effective demand. Effective demand increases if the rate of loans exceeds the rate of repayment of loans for the economy considered in statistical whole. Both make loans. This transaction does not increase or decrease total system deposits. All that has changed are details of specific contracts.
Credit is a range within the spectrum of contracts varying in details.
The details represent competitive juxtapositioning between financial institutions and their customers. There is no need for debt free money, nor is it technically feasible anyway. Fiat money is the government's debt, though it never has to repay it provided the amount it spends is equal to the nation's demand for a portable means of exchange. You are reasoning from definitions rather than reasonably defining terms to apply to the real-world. It is debt-free in the sense a private corporation is not when it prints bonds.