How to Pay Off High Interest Debt Faster with Lending Club

August 15th, 2010 | by Heather Munoz |

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If you have a lot of credit card debt, you might find that it’s very difficult to dig out of that hole because of the high interest rates that banks are now charging credit card customers. Last fall, Citibank announced that even customers with good credit would be having their rates raised to 29.99%. The average credit card interest rate is well above 15%, and if you’re paying an interest rate of 12% or more on your credit card, there’s a way that you can cut the amount of interest that you’re paying so that you can pay off your debt faster, a debt consolidation loan through a peer to peer lending site such as Lending Club.

If you’re not familiar with the idea of debt consolidation, you are basically taking all of your high interest debts and taking out a loan at a lower interest rate to pay them off. Let say that you had $20,000 in credit card debt and the average interest rate was 19.99% APR. You would be paying $4,000 in just interest in each year on that debt. If you took out a peer to peer loan from Lending Club and received a loan at 9% (that’s the average rate that borrowers are getting), you would be savings $2,200 per year or $183.33 per month in interest that could be going to pay down your principal balance which will help you get out of debt much faster. Every month that you pay down the principal balance, you are reducing your monthly interest charge, accelerating the process.

The other main benefit of taking your high interest credit card debt and consolidating it into a peer to peer loan through Lending Club or Prosper.com is that the term and interest rate are fixed. Instead of paying an interest rate which could skyrocket at any minute, you’re guaranteed the rate that’s quoted to you for the like of the loan. Lending Club and Prosper both offer fixed payment terms, meaning that once you have made all 36 or 60 payments (depending on what type of loan you choose), you are completely out of debt. There’s no getting stuck in minimum-balance hell from a credit card which will leave you in debt for more than 20 years.

Both Prosper.com and Lending Club offer these loans with interest rates starting at about 7%. For high risk borrowers, the interest rate can be as high as 20%, but the average interest rate that borrowers pay is about 9%, so you can expect to get an interest rate at about that rate. Loans from Prosper.com and Lending Club are available in most states, and you can get either a 36 month or a 60 month repayment term, depending on what works best for you. With these two websites, you can take out a signature loan for any reason as long as you have a credit score of 660 or above.

In order to apply for a peer to peer loan, you can visit Prosper.com’s website and Lending Club’s website. It might be worth it for you to apply on both sites and see which company will offer you better terms on your loan.

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