The most widely known choices for getting out of debt are credit counseling or a debt settlement plan. But you can “DIY” more easily than you think. Many consumers believe they can’t settle their own debt. But after looking into all of your choices, you may decide to pursue a solution you never considered – or even knew about. Whatever choice you make, it’s time to dig yourself out of debt.
Peer-to-peer consolidation loans
Despite what you may have heard, unsecured debt consolidation loans are still available at reasonable interest rates. The key, though, is to skip the banks to find the best deals.
Peer-to-peer lenders can offer lower rates because they don’t have a brick-and-mortar infrastructure to support. These infrastructure savings get passed on to customers, since
they don't need to charge as much.
A true debt consolidation loan, where you borrow money to pay off your debts and then repay the single loan, will accomplish your DIY goal if you don't go back into debt before you repay the loan.
To work, the interest rate of the debt consolidation loan will need to be less than you are collectively paying with your current debts to reduce your monthly costs. These loans are typically paid back over three to five years.
Like other types of lending, the interest rate is going to depend on your credit score. So don't wait till you fall behind on your bills and hurt your credit score before exploring a debt consolidation loan as an option.
The debt consolidation loan can save – and might even help improve – your credit. Since you will not need to close the credit cards you pay off with the loan, your credit history won't be lost. Additionally, the lenders may report your repayment performance to the credit bureaus, which will help improve your credit.
The debt consolidation loan approach can work well and give you reasonable interest rates if your credit score is above 720, although lending networks will lend to people with lower scores.
Visit the websites of peer-to-peer lenders to decide if a debt consolidation loan makes sense for you. To their credit, both Prosper and Lending Club offer a significant amount of transparent data to show you their past performance and lending rates.
Steve Rhode is a consumer debt expert who has been helping people find good solutions for bad debt problems since 1994. Having lived through financial problems, which led to his bankruptcy in 1990, he decided there must be better ways for people to face debt issues.