Credit card debt feels impossible to rescue yourself from. High interest rates, low minimum payments, and the ability to spend up to your credit limit all lead to large expensive debt loads. The minimum payment is designed to simply keep you from going completely under; if you pay just the minimum payment it will take your years to fully get out of credit card debt if the interest rate is anything like a normal credit card interest rate.

One of the more recent innovations in the financial sector of the American economy is that of peer-to-peer lending or P2P. Peer-to-peer lending can be used to finally beat your credit card debt. However, just like other debt management techniques taking out a P2P loan can also be disastrous for your finances.

How a Peer-to-Peer Loan Can Solve Your Credit Problems

The easy part of credit card debt is getting in. We jump in feet first into a deep hole.

Then we look up, see how far down we are, and realize there is little to help us fight our way out.

A peer-to-peer loan can be the rope ladder thrown down into the pit of credit card debt. It is one way of paying off your high interest debt and eventually being completely debt free. Here’s how.

What is a Peer-to-Peer Loan?



Websites like Lending Club and Prosper allow groups of individual investors to lend money to individuals that need it. The borrowers in need of the loans state their case for how much money they need and why, provide financial details (such as where you work, how long you have been employed there, agreeing to a credit check to look for your score, any delinquencies, and your total credit utilization), and wait for investors to agree to lend money to them.

Investors look at the loans available and using their own judgment (or an automated system the companies provide) decide which loans to invest in and how much money to invest in each loan. When the loan is fully funded from a group of investors the loan is closed, the borrower is given the money, and a new debt is created that requires payments.

How to Use P2P Lending to Solve Credit Card Problems

Credit card debt is:

  • High interest rate
  • Low minimum payment
  • Infinite duration

Because the minimum payments are so low it can take you years or decades in order to pay off the debt. Over that period of time you will pay thousands of dollars in interest.

Of course you don’t have to pay just the minimum, but many people do either because they have racked up so much credit card debt that is all they can afford or simply choose to spend the money beyond the minimum payment on other things.

A peer-to-peer loan can allow you to swap your high interest rate loan with no end in sight for a fixed payment loan with a definitive loan term. Peer-to-peer loans are available in 36 month or 60 month terms. That means you will pay off the debt making regular payments by the end of the loan term just like you would with a car loan.

Even better, the P2P loan will usually have a lower interest rate than your credit card does. The P2P companies put you into a credit category just like any other lender, and the determines your interest rate. Even with the same or slightly higher rate you end up ahead because there is a definitive point in time when your debt is paid off.

To successfully pay off your credit card debt with a P2P loan, you must:

  • Adequately describe your situation so investors will want to invest in your loan
  • Use the loaned funds to pay off your credit cards
  • Cut up your credit cards and stop using them (without canceling the accounts)
  • Stop using other forms of credit
  • Make the required monthly payment to the P2P loan
  • Pay off the debt in the required term (or earlier)

When used correctly a peer-to-peer loan can save you thousands in interest and get you out of debt for good.

That is, if everything goes according to plan. Sometimes it doesn’t.

How to Ruin Your Financial Situation with a P2P Loan

We’ve walked through how you can turn your financial life around using a peer-to-peer loan, but doing so requires discipline that many people do not have.

And that’s a problem.

If you make no change in your financial behavior — the act of spending more than you earn or grabbing that credit card when you see something you want but can’t afford — then you will never see success borrowing your way out of debt.

When you take a P2P loan you use the funds to pay off your credit cards. That wipes out the high interest debt and leaves you with one payment to make to one big loan. If you stay the course and pay off that loan on time, you’ll be free of the chains of debt.

But if you don’t stop using credit, you can quickly double your amount of debt. If you can’t make yourself stop spending more than you earn, and you turn back to credit cards, you will soon have your balances back to where they were in the first place. You’ll be back fighting minimum payments and paying high interest rates.

And you’ll have to pay your peer-to-peer loan, too.

This can easily lead you to a place of not being able to afford to make all of your payments. That is where things really spiral out of control: late payment fees, instantly getting the highest interest rates, collection calls from the P2P lending company, collection calls from the credit card company… and potentially bankruptcy.

Should You Use P2P Lending to Pay Off Credit Card Debt?

Borrowing money to pay off debts of borrowed money is a risky proposition whether it is a P2P loan, a personal loan from a credit union, or a loan from your best friend. If you pay off your debts and stop using credit, it works out great. You pay less interest and pay off the loan in a certain amount of time.

But if you fail to put an end to your abuse of credit cards you can find yourself in much, much deeper financial trouble.

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