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Pay Off Credit Card Debt Through Peer To Peer Lending
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by Paul M. J. Suchecki
TheSyndicatedNews columnist
Paul M. J. Suchecki has more than 30 years of experience as an award winning writer, producer, and cameraman. He's written numerous newspaper and magazine articles. Currently he writes, produces and shoots for LA CityView Channel 35 and his more than 250 articles for Ehow.com are approaching half a million readers.
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In today’s economy with credit tight and home equity drying up it’s all too easy to start racking up credit card debt. Once you’re past the introductory rate, your interest typically climbs to 18%. If you simply make the minimum payment, that action can trigger a new credit report. Even if you’ve never been late, the card issuer would then be justified in raising the interest, as high at 30% and beyond, just by giving you notice. Changes don’t look likely. Although bankers are clamoring for taxpayers to foot a $700 billion bail out, they are fighting the House of Representatives' passage of a "Credit Cardholders' Bill of Rights." So how can we dig out of this credit card mess? We can turn to our peers.
Peer to peer lending is a child of the Internet age that puts borrowers in touch with lenders. Although there is a middle man, the spread is far less than with a bank, so borrowers pay less, and lenders make more. There are several sites that do this, including Virgin Money and Zopa.com. As an example, we’ll be walking you through the process with Prosper.com, which makes loans to anybody, including those with marginal credit.
Begin by registering with the site. Fill in your personal information, including a user name. You’ll soon be mailed a post card. When you receive it, log onto the site to verify your address.
If you are looking to borrow money, you have to give account authorization. Your money will both be deposited from the account you choose, and automatically deducted from it for monthly payments. The most secure way to give Prosper account access is to provide your account number, so the site can deposit a few cents into your account and then withdraw a few less. Once you see the transaction, log on to Prosper.com and report the amounts.
Next, allow a credit check. Give the site all of your appropriate credit information, including income and budget. You need to be able to verify income, even though with a small loan you won’t be asked to do so. Prosper will then rate your credit from A to E.
Add up all the balances you owe on your cards. It will surprise you. Be sure to request a big enough loan to cover everything, less the site’s service fee. If your loan is funded, you won’t be able to borrow again from Prosper for an entire year.
Determine the average interest rate on what you owe. Now, choose the interest rate you want to pay on Prosper. Based on your credit score Prosper will suggest a range. Don’t start too low, because you want to attract a lot of attention to your offering. As a good launch point, begin at 5 percent under the average interest you are paying. Here you’ll also decide on the amount of time that your loan will be offered to the public on Prosper. By choosing ten days, you’ll have time to publicize your loan. If you are fully funded at a rate you can live with beforehand, you can always take the money earlier.
Take the time to write out and polish a good story about why you want the loan. If you cruise the site, you’ll see a range of reasons why borrowers need loans for everything from launching a business to debt consolidation. Be sure to post your picture. One borrower put himself in a gangster pose, behind the wheel of a fancy car. I doubt that he got much of a response compared to one borrower in a respectable suit who was buying a first car for his teenage son.
Get recommendations from long time friends and associates. To post a personal recommendation on the sites, your colleagues will actually have to join Prosper, so don’t expect that everybody you ask will go to this trouble. However, if you can get one or more of your friends to write a recommendation it will go a long way toward establishing your credibility. Even better, get one of them to become a lender to you through Prosper. They can begin with as little as $50.
Now wait for the fun to start. In real time, you can track the number of people who have agreed to loan you money and project when you will be funded. If you’ve got no activity for a couple of days, you might want to pull your posting and rework it. However, don’t panic if you are only half funded with a couple of days to go. The process is the reverse of eBay’s. On eBay, the price frequently gets bid in the last hour that an item is auctioned off. On Prosper, your interest rate is bid down by lenders willing to accept a lesser return.
If you’ve followed the steps I’ve outlined, expected to see a loan materialize where you’ll save money compared to credit card debt, and you’ll make money for other people who need a good investment. When your bids close, Prosper will deposit the amount you requested, less a service fee. It will also charge a point each month in interest. You can also readily repay the loan ahead of time by logging on to your account and authorizing additional payments.
As soon as you get your loan, pay off your credit cards immediately. Put them in a drawer. Unless they are charging membership fees, keep the accounts open. Your FICO score will then go up, because two of your credit factors have now improved. You’re using less of your total credit, and your monthly payments have dropped.
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Published: Sep 28,2008 21:44
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Andy Cowan
Andy Cowan, an award-winning writer, whose credits include Cheers and Seinfeld, regularly contributes humor pieces to the Los Angeles Times and the CBS Jack FM Radio Network.
Paul M. J. Suchecki
Paul M. J. Suchecki has more than 30 years of experience as an award winning writer, producer, and cameraman. He's written numerous newspaper and magazine articles. Currently he writes, produces and shoots for LA CityView Channel 35 and his more than 250 articles for Ehow.com are approaching half a million readers.
Coby Kindles
Coby Kindles is a freelance journalist, screenplay writer and essayist. She has been a staff writer at Knight Ridder and a regular contributor to The Associated Press.
Debbie Milam
Debbie Milam is a syndicated columnist for United Press International, an occupational therapist, family success consultant, and motivational speaker with more than 20 years experience. Her work on stress management, spirituality, parenting, and special-needs children has been featured in over 300 media outlets including First for Women, The Miami Herald, Elle, Ladies Home Journal, The Hallmark Channel, PBS and WebMD.
Dan Rafter
Dan Rafter has covered the residential real estate industry for more than 15 years. He has contributed real estate stories to the Washington Post, Chicago Tribune, Business 2.0 Magazine, Home Magazine, Smart HomeOwner Magazine and many others.
Jack Nargundkar
Jack Nargundkar has been repeatedly published in Business Week, The Wall Street Journal, The Washington Post, and The New York Times. He is also an author of "The Bush Diaries" published in July 2005.
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