How Much Is Debt Costing You in Opportunity?

While perusing my ever growing backlog of feed reader favorites I ran across an article that caught my eye from One Caveman’s Financial Journey.  He makes the point so many of us who have been paying off debt for some time have all thought:  I Could Be Rich If I Didn’t Have All This Debt.  No kidding!  As I sit down to pay bills each month, and schedule yet another debt snowball payment, I just cringe at the thought of all the good I could be doing with that money.Just this week I retired an old debt consolidation loan that’s been hanging around so long I thought it was a pet (to borrow Dave Ramsey’s line).  The loan represented debt from our early years of marriage, and some leftover debt related to the pursuit of my online degree.  We are still not quite debt free, but getting close!  It felt so good to rid ourselves of that loan payment.  When we signed up for the loan a couple years ago we opted for a shorter repayment term, and a higher monthly payment, in order to get a better interest rate.  The drawback to that plan was we were stuck with a $375 monthly debt payment.  We whittled away at the loan, faithfully making the minimum payments, and throwing any extra earnings at it to get it paid off quicker.  I’m glad we did, but now that it is gone I have reflected on how much money that loan diverted from our other goals.

Opportunity Costs

Economists define “opportunity costs” as the cost of pursuing one choice over another.  It can be applied to the world of personal finance in a variety of ways.  In our case, the opportunity costs of choosing to go into debt and make payments for a couple years were missed opportunities to save and invest that same money so it would be working for us, not the bank.  We now find ourselves behind on college savings, our own retirement, and have struggled to keep up a fully funded emergency fund.  The $375 we were sending towards debt repayment could have helped fund those goals all along.  Now, we’ll have to play a little catch-up to get back on track.

Non-Monetary Opportunity Costs

My wife and I have always wanted to be better givers, and want to instill a giving spirit in our children.  However, it is hard to help others from a position of weakness.  Over the years we’ve heard of friends, family and neighbors going through some hardship and wished we could help.  Having to pass on those opportunities was a painful reminder of how much weaker we were, financially, for carrying debt.  I’m sure there are others out there with similar desires to be givers, but weighed down by similar circumstances.  I’d venture to say if more households were living a debt free life fewer shelters would have bare cupboards, and fewer worthy charities would be closing their doors.  If any good can come from this recent economic fiasco it’s that people are finally starting to think about reducing risk from their lives.  And paying off debt is a great way to start.


  1. Even though paying off debt to eventually eliminate debt has an opportunity cost, it has to be much better than going deeper into debt doesn’t it?

    I’m in the same boat with three debts that I’m paying down. My mortgage is a long term debt which I pay a bit extra on each month. The other two debts I have are steadily being paid off and even though I sometimes get frustrated and impatient, I keep perservering because I know I will be free of them in a few years – one at the end of next year and the other two to three years after that. Being an Australian I’m extremely fortunate because all employees and employers have to contribute to a compulsory retirement savings system – that’s an opportunity cost I haven’t had to worry about.

    Congratulations on removing the loan, and keep on trucking with any other debts you have.

  2. Congrats on retiring that debt!

    And remember that tho you may not be able to give financially to others, you can still give of your time, and sometimes, that is just as important 🙂

  3. Every check we write, I think about the fact that had we been living this way from the get go we’d be writing a check to ourselves instead. I only hope that we get used to living this way so that when it’s all paid off, we can switch from aggressively paying to aggressively saving. And really it hasn’t been that tough. Mainly, we’ve been more deliberate in our choices and priorities.

  4. I love this post –
    It puts all the personal finance stuff …
    In a perspective that people can really relate too!
    Thank-you 🙂

  5. This year we turned the courner, not so much that were debt free but we paid off enough debt to be able to live on my Wife’s wage comfortably. More importantly after a year and a half of climbing back to zero we are starting serious savings.

    It’s a nice feeling trust me.