The Opportunity Cost of Not Using Lending Club

Posted by Mike Smith :: September 10, 2007 @ 7:16 am

When we think of the concept of an opportunity cost, we generally think of the value we could have generated by making a different choice with our money. Too often, we allow this definition to be limited by the first level of benefits that may come to mind. By expanding our level of thinking, a more accurate picture of opportunity cost comes into view.

The opportunity cost of not consolidating your debt with a P2P loan from Lending Club goes far beyond just the money that you could save each month. You need to consider what you would do with that extra money and the value that would result from it.

Consider the value that would be generated if you paid for additional education with the money you saved by turning to Lending Club. The added skills might qualify you for a new career where you could consistently earn more money, which in turn could accelerate your progress out of debt.

The same line of thought holds true for people who save their money at a low rate of return, such as in a savings account, versus a higher yielding alternative. The opportunity cost is not just the difference in interest that you earn each month, but also the value of what you could create with that extra money.

In either case, by using money saved to generate additional value, the opportunity cost of not using Lending Club continues to rise. As the process is repeated, and the extra value generated is used to generate even more, the compounded value can quickly make not using Lending Club expensive from an opportunity cost perspective.