Yesterday, I took out a debt consolidation loan, and I posted about it on a frugal living website where I also post. The comments that I received were supportive of my getting my act together, but also chastising–why don’t you cut spending instead? Why don’t you find a lower loan rate? Of course, on a frugal living site, that is the type of comment you will get. But this also forced me to think about what one buys when one takes out a loan.
If one takes out a longer term loan than one actually needs (as I did), *and* (importantly) there is no prepayment penalty, then one is actually buying oneself some freedom and flexibility. And with fixed loan payments rather than hopping around from one 0% credit card balance transfer to another, I am also buying myself considerable peace of mind and the ability to schedule.
Yes, it is true that the money I spend on debt repayment won’t be there for retirement. But THAT’s a sunk cost. And sunk costs are irrelevant to future decision making! The debt accrued, I’m not sorry for the expenditures (much of it spent on trying to save dying pets and on professional development expenditures to support my career change), and the debt needs to be repaid in any case. One can’t undo the past, one can only move forward from where one is.
And while for people who are unlikely to ever have the money to repay the debt, avoiding it is a good idea, for those of us who have good reason to believe that our careers are on an upward course and who, with good reason, believe that they will eventually have the wherewithall to pay, using debt as leverage to purchase some peace of mind is not necessarily a bad idea—perhaps even a good one. I wouldn’t do this if my debt to equity ratio were over 60%, as it was a decade ago. But mine is currently under 21%, which provides good odds that my spending a bit more on interest to buy peace of mind will have a good result.