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Many Americans carry high balances on their credit cards. Some manage to whittle down their outstanding balances slowly over time and can repay the debt in full on their own. However, credit cards often have high interest rates and revolving terms. These two characteristics make credit cards notoriously difficult for individuals to pay off. Some savvy consumers are consolidating their credit card debts into a single loan to pay their balances off more quickly. Peer-to-peer lending is one type of debt consolidation program that you can consider, and a closer look at this option will help you to determine if it is right for you.

What Is Peer-to-Peer Lending?

Through peer-to-peer lending, you will set up a single loan through top peer-to-peer lenders, such as Prosper or Lending Club. These lenders will pull together the loan funds from various smaller investors. Some investors may only contribute as little as $50 or less toward your loan, and this means that they take on little risk extending the loan to you. However, because many investors will be pulled together, you may qualify for a loan amount of $30,000 to $40,000 or more in some cases. You will make a single, affordable loan payment to the peer-to-peer lender. The interest rates are generally affordable, and you will benefit from having a fixed term loan. A fixed term loan often generates faster debt reduction and lower monthly debt payments. More than that, at the end of a fixed term, the entire debt is repaid. This can truly benefit many people who struggle with high credit card balances.

Who Can Use Peer-to-Peer Lending?

Before you apply for a loan through a peer-to-peer lender, such as Lending Club or Prosper, you must first determine if you would qualify for a loan. Your credit rating will be reviewed. Lending Club requires borrowers to have at least a 600 minimum credit score, and Prosper requires at least a 640 credit score. You also must be a U.S. citizen and at least 18 years old. Some state restrictions also apply based on the lender you decide to work with. If you meet these requirements, you may look further into a peer-to-peer lending option for your credit card debt situation.

Why Are These Solutions Good Options?

The interest rate that you may qualify for through this type of debt consolidation plan can vary based on your credit rating and overall financial picture. However, generally, you can expect to lower your interest rate and set your debt up on a fixed loan with a defined repayment date. Each individual’s financial profile and credit rating will be reviewed carefully, so the actual benefits that you may enjoy may vary. The most significant factor that will vary is the interest rate that you qualify for. However, even if you qualify for a higher interest rate with a peer-to-peer loan, keep in mind that the fixed term offers substantial benefits over a revolving loan term on your credit card debt currently.

Are There Reasons Why You Should Not Use These Options?

This type of debt consolidation loan is not right for everyone. The reality is that some of these loans have high fees, and it may not make sense to assume these fees if you carry only small balances on your credit card accounts. In addition, think about your challenges with managing your money. Debt consolidation generally only is effective at improving your financial situation if you take steps to improve money management and to pay down your debts. If your current lifestyle involves living beyond your means and using credit cards regularly, debt consolidation may actually make your debt issue worse. This is because transferring your debts to a consolidation loan will free up additional space on your credit cards that you can begin using. The ideal solution to combat this is to close your credit card accounts immediately after you consolidate your debts.

A debt consolidation loan is an excellent way to improve debt management and reduce debt balances more quickly. However, there are many types of debt consolidation loans to consider. By exploring each of these options carefully, you can better determine if using Lending Club or Prosper for your debt consolidation needs is a wise move to make.