This paper examines the redistributive effects of monetary policy in an incomplete market model with nominally non-state contingent debt. We assume that borrowing is constrained by current income, such that the debt limit does not account for expected price changes until maturity and monetary policy is non-neutral. Depending on the initial debt/wealth position and the willingness to borrow, low inflation and associated low interest rates exert ambiguous effects on agents. For a simplified model version, we show analytically that a debt deflation effect can be dominated and that borrowers can benefit from lower inflation rates. Applying a quantitative version of the model, we find that social welfare is maximized under modest deflation. Joint with Christian Loenser.