They found that the average household has $7,087 and when you look at just the indebted households it comes out to $15,191.
Families not only have to deal with the balances, they typically have to pay high interest rates on them, making it harder to get out of debt.
What if you are one of those families and you’re tired of having your paycheck being devoted to just keeping up with the bills? There are ways you can take control of your finances and gain your financial freedom.
Find Out Exactly How Much You Owe
This may seem like a obvious step, but you may be surprised with what you find out like discovering that your interest rate had shot up on one of your credit cards.
Once you have a list all your creditors, the interest rates, and the total amount you owe, it’s time to get organized.
I was creating a barrier for myself and improving my finances. For others, you may have to lock them away or shred them to stop using them.
Tucking away your credit cards isn’t enough. You can’t get out of debt if you keep going back into it.
The two of you need a spending plan that will avoid having to rely on credit cards in between paychecks. It has to be realistic and sustainable.
Choose a Payment Plan That You Can Keep
The wonderful thing with getting out of debt is that there are several different routes you can take to reach your goal. Use either a debt snowflake, snowball, or even an avalanche to work your way to being debt free.
Just use a method that works well with your spending habits. Highest interest rate method is the financially sound decision and lowest debt is the psychologically empowering decision.
I went for the debt snow ball method (lowest balance first) to give myself a win quicker and to keep me on the plan. When we were married and were paying off the car loan early, we relied on one another to keep motivated.
You two can set up payments through your credit union or bank so you don’t have to constantly worry about whether you did it while juggling your regular responsibilities.
Staying Motivated While Getting Out of Debt
Speaking of encouragement, most of us can appreciate rewards. As humans we all need incentives to do something.
For some people seeing the numbers go down on their debt is motivation enough to continue. For me, it was celebrating each credit card pay off. Everyone has something that can keep them focused. It doesn’t have to be big or expensive (no need to undo what you did), it just has to be special.
Thoughts on Paying Off Credit Cards
I hope you’re revved up to tackle your debt. For those who have conquered your credit cards, what tips do you have on paying off debt?
Using a debt snowball while lowering your interest rate on those debts can have a huge impact and peer to peer lending can be a practical way for you to reach that goal.
What is Peer to Peer Lending?
At its core, peer to peer lending is about people directly lending to other. It is a form of crowdfunding, but instead of money for a business, it’s for an individual.
Two fo the biggest ones in the United States are LendingClub and Prosper. Borrowers may have a very affordable solution to help consolidate high-interest debts into something more manageable.
With current rates ranging from 6.4% (A grade)-16.2% (C/D grade), there’s a good chance that you can have more of your debt snowball is going more towards the principle. This can significantly cut down on the time it takes to get rid debt.
Another benefit is that these loans are at a fixed rate, allowing you to budget accordingly and not worry about rates skyrocketing.
How Peer to Peer Lending Works
Having a peer to peer to loan doesn’t mean you’ll just be handed over money. Like bank loans, borrowers must apply and their finances should justify the loan they requesting.
Submit an application: You give your general information and finances along with the loan amount you’re seeking.
Look at terms: You may be given a couple options on the rates and loan length. The longer you carry the loan the higher the rate. Run the numbers again and choose the best terms for your situation
Provide additional documentation: You will most likely be required to send in bank statements, taxes, and pay stubs. You’ll also be asked to verify that your bank account is correct with a small transaction.
Results: If approved, the money is deposited into your bank account. If you’re rejected you’ll receive an explanation so you can improve your numbers.
The entire process can take about 5-7 business days, fairly quickly when you’re looking to consolidate.
Thoughts on Peer to Peer Loans
I’d love to hear from you – have you ever used peer to peer lending sites like Prosper or Lending Club? How did it go for you?
If you don’t have debt, but you like the idea of peer to peer loans, you may want into being an investor. Investing in peer to peer loans can be a wonderful way to earn a return on your money and help others.