Debt Is Not Always Bad

Being in debt is not always a bad thing. Purchasing a house, buying or leasing a car, borrowing money to pay for and your children's college educations are all debts. However, when debt is managed properly, you simply have to keep the amount you own within your ability to pay.

Many people find themselves in debt, because they overextended, unexpectedly lost their job had a major family crisis or your entire 401k and other investments tanked, and the prospect of the value returning to its prior level is not too good.

Other people go in debt because they over-extended the use of credit cards, the small savings at the bank and poor management. Most people do not intend to go into debt. Some people have more than their share of misfortunes, ranging from the home value increasing, leading to higher property taxes. The car breaks down, and it needs a new engine. There are always unexpected expenses that everyone should anticipate when they make a major purchase.

How to manage your debt will depend on whether you have maintained a good credit and do not wait too long to act, or if you have a poor credit rating resulting from overspending, unexpected expenditures and other items.

If your credit score is good, your situation may be handled through a low-interest debt consolidation loan. This can be handled through the use of peer-to-peer lenders such as Prosper Loans or Lending Club.

Should you have a poor credit rating; you will need to seek the services of National Debt Relief. In this case, steps may be taken to negotiate better interest rates on credit cards and other steps that would reduce your debt and make it more manageable.

Do Not Delay in Seeking Help

One basic thing to remember is not to delay seeking help. If you are only paying interest on credit cards, nearly exhausted your savings and considering borrowing against your 401K account or other pension plan, then it is time to take action.

When considering debt consolidation you are taking out one loan to pay all the outstanding bills and perhaps have some left over for emergences. The following link will show the difference between Prosper and Lending Club. The final rate you receive on your debt consolidation loan will depend on your income, your credit history and the type of debt you have, which can range from the excessive use of your credit cards, or being hit with a higher mortgage payment because the low variable-rate mortgage you secured several years earlier has increased to a burdensome level.

Using either of these companies should not hurt your credit score and may actually improve it, especially through the paying off of credit card debt.

Both companies have similar procedures for borrowing money, but there are differences in determining qualifications, rates and other issues. Therefore, if pursuing a debt consolidation loan, check out both sites, learn how they determine credit scores, duration of the loan and other factors. Then choose the one that seems best for you.

Regardless of which company you chose to help manage your debt, it is important to check out both web sites. Either site may look appealing, but comparing the two sites will help determine what is best for you.

Examples of Monthly Payments to Reduce Debt Using Lending Club

The following examples assume a three-year pay out with an interest rate of 7 percent.

$5,000 -- $154.39 $557.88

$10,000 -- $308.77 $1,115.75

$20,000 -- $617.54 $2,231.51

$30.000 -- $926.13 $3,347.26

Prosper does not provide the same type of calculator on its website as Lending Club. However, by going over the site, the borrower can enter various amounts and terms and provide some basic information, such as name, email, etc. and then receive the interest rate. According to the website Prosper offers a lower interest rate. The 7.0% APR example used above is for demonstration purposes. Interest rates will be determined by your current situation, the amount of debt and other factors.

If your credit rating is still good, using one of the above-mentioned companies would be the best choice. Your debt will be consolidated and a sum of money to meet that obligation will be loaned you to pay down the debt. After that the client will pay back, over a number of years, the loan that was made. The length of the term of the loan will be based on the amount of debt. The interest rate will be driven in part by standard rate tables, but these services will probably charge more than a bank loan.

Peer-to-Peer Differs From Traditional Lenders

Lending Club and Prosper are identified as peer-to-peer (P2P) and are different than traditional lenders. The major differences are that P2P lending sites are supported by private investors instead of financial institutions such as banks. Furthermore, P2P lenders will frequently offer lower rates than other lenders.

However, like mortgage lenders and credit-card companies, the greater risk you take as a borrower because of your credit status, the higher your APR. Depending on your credit score and documentation, you can receive your loan in as little as one business day versus a longer wait with traditional loans. Most P2P loans will have various fees associated with in including an origination fee, late-payment fee and failed payment fee.

Originally, P2P lenders were not federally regulated. That has changed. The P2P lenders are now obligated to register with the Securities and Exchange Commission (SEC). In addition to the federal oversight, each state has regulations regarding Peer-to-Peer operations. Therefore it is important to check the appropriate regulations to determine the impact.

Solutions Available for People With Poor Credit History

Sometimes people will not be concerned with proper management. Credit cards are offered with a beginning low interest rate that may increase significantly in three to six months. Accordingly, the higher interest rates make it harder to pay more than interest each month.

In cases such as this, the services of National Debt Relief may be your best solution. This method can help reduce your debt, avoid bankruptcy and help you to improve your credit score.

National Debt Relief will negotiate with the companies that you owe money to and seek a lower balance that has to be paid.

The company works to reduce the amount of unsecured debt you may have. These debts include:

• Credit Cards
• Personal Loans and Lines of Credit
• Medical Bills
• Collections and Repossessions
• Business Debts
• Certain Student debts

However, there are some debts that National Debt Relief cannot negotiate to a lower amount. These include

• Lawsuits Settlements
• IRS Debt and Back Taxes
• Utility Bills
• Auto Loans
• Government Loans
• Mortgage and Home Loans
• Other Secure Debts

National Debt Relief states that for those that qualify, the client could be getting out of debt in 24 to 48 months.

On its website, the National Debt Relief states that customers will realize 50 percent savings before fees by completing the program. After fees are added the saving is approximately 30 percent. The company notes that some people do not finish the program for various reasons.

While there are several companies offering debt-relief service, National Debt Relief has earned an A+ rating from the Better Business Bureau and is ranked top among other companies according to Consumer Reports.

To summarize what National Debt Relief will provide can be summed up in two points. First, the company will seek to work with your creditors to reduce amounts owed on credit cards, medical bills and other debts previously listed. Then the company will help you eliminate your debt my developing a payback program.

Making A Decision

Determining what approach you are going to take is important. Several options are available for most people. Naturally, there are the options presented thus far including the two leading companies, Prosper and Lending Club. Then there is National Debt Relief. There are also three options available, but not necessarily the best choice. These options include trying to reduce your debt without any assistance. The next is declaring bankruptcy, which will impact your ability to use credit for years and the third, which is ignoring the issue and hopes it goes away.

Debts do not just go away. A debt may be written off the balance sheet, but that does not mean collection efforts will cease. In most cases such instances will be turned over to a bill collector, whose only interest is collecting the money, without any concern how it will affect an individual or a family.

Avoiding the Debt Problem

Excessive debt can result from spending too much on non-essential items. This leads to higher credit-card balances, warning notices and possibly calls from bill collectors. Such debt will lower the credit score and will impact the entire family. Excessive debt can also result from unforeseen events, such as losing a job, multiple problems with major appliance, and other high-endpurchases. Also, losing a job with only a small or non-existent severance package can result in sudden debt.

Thus, there are certain things that need to be avoided. Some of the actions that should be approached cautiously include:

• Adjustable Mortgage Rates: This approach to home buying can cause a lot of trouble. With a beginning rate that sounds very attractive, many people buy a home that is more than they need. Next, the financial markets have a change and the interest rate on the mortgage goes up, sometimes to the point that a person must sell the house, and usually without much profit.
• Sometimes, it seems like the world caves in around you. The car is hit by another, but the owner has no insurance, and you have to pay the deductible for the coverage your insurance company provides and watches your rates go up.
• Medical bills can be a major source of concern. No one knows when they are going to get sick or be injured. They have a health policy, but the deductibles are high and the co-payments mount up in a hurry.
• The central air conditioning and heating system has to be replaced.
• You lose the job that you have held for 10 or 15 years. Thus you have to buy family health insurance. Your retirement savings are lost as you search for a new job.

Do Not Delay

These are just some of the scenarios that can lead an individual or family falls into debt. Some of these examples could be avoided by thinking ahead. There are other times, when the unexpected becomes a reality.

Regardless of the cause of financial trouble, there is always a way out.

The options offered here will set most individuals and families on the way to financial security and freedom from debt. However, remember credit problems will not be solved overnight. It is up to the consumer/client to do their part.

If your debt-to-come ratio is becoming a problem, it is best not to wait and hope things will get better. Debt does not disappear by itself. Therefore, it is best to approach the problem as soon as possible.

Lending Club and Prosper are your best choices if you have debt but still have a good credit rating. It is important to act quickly because excessive checks of your credit score or signs that you are behind on your payments can lower your credit.

In cases where the credit score is low, and probably getting lower, then National Debt Relief will be your best option.