So I will be the first to admit it, I wasn’t always super smart with credit cards. I remember getting my first credit card back sophomore year in college and the very first thing I did was I bought a MacBook Pro. I know right? I’m a PC guy lol? I didn’t realize at the time the ramifications of what I had just done. And no I didn’t have money to pay it off at the end of the month. When I say I was in college, I meant to say I was in a private University that cost $38,000 a year.
So it was late into 2014 that I decided I wanted to get out of debt. My goal is December 31st, 2015! Yes I know that is a lofty goal, but I have some tricks up my sleeve. One trick that I wanted to share with you is how I used Peer to Peer lending to my advantage and am happy to say I just paid off my loan this month! (it will be in this upcoming debt report)
What is Peer to Peer Lending?
Peer to Peer lending is the practice of lending money to unrelated individuals, or “peers”, without going through a traditional financial intermediary such as a bank or other traditional financial institution.
I had about $4,600 worth of credit card debt that I wanted to get rid of. The bad thing is one of my credit cards had an interest rate of about 16%. So every month I was getting dinged a fairly decent amount in interest charges. So I looked to Peer to Peer lending and decided to get a $4,600 personal loan through Lending Club. (And yes they are FDIC insured as in they keep your funds at Wells Fargo)
Basically how Lending Club works is that you submit your application, they pull your credit score and a few other factors, and then you get submitted into a letter graded criteria of A, B, C, D, etc… A means you are a safe loan. Once your application is approved your loan is put into the marketplace for your peers to bid on. A bunch of people can invest into your loan and they will do so usually by your letter grade and the risk involved. The higher the risk the higher their return is.
For the person borrowing money you do find out your interest rate ahead of time, mine turned out to be 6.49%… so logically it made sense to consolidate all my credit card debt into that, and pay that off instead. There is a small fee to take out the loan, mine one was under $100 and the great thing is there is no early payoff penalty.
Do the Math on your Interest
It took me 4 months to pay this off. Yes, that is pretty fast but you will see why in my debt report coming out. All in all I paid $62.39 in interest charges. If I had stayed with my credit cards I would have paid $154.35 in interest charges. Now if your loan is longer this can really add up to a lot of savings. For example if it had taken me 2 years to pay it of at 6.49% I would have paid $317.41 in interest with the Lending Club loan where as on my credit cards at 16% I would have paid $805.53 in interest.
Cut Up Your Cards and Get Serious
As you can see above if you are serious about getting out of debt I highly recommend consolidating with a peer to peer loan. And the best way to succeed with that is to move them to one low interest rate loan and then cutting up your credit cards. Yes you heard me right, cut all of them up but one. Then use one card, but pay it off every month, or every night if you have to. I talked about what credit card I switched to in my post “get an accountability partner to pay off your debt“.
As always feel free to leave your comments below!