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Will You Really Help to Fund My Debt Consolidation Loan?

By on April 8, 2016

Question:

Dear Steve,

I have $40,000 in credit card debt (accruing interest) and about $10,000 currently on 0% promotions. Tried to consolidate via credit union or with Wells Fargo a several times over the years. They all declined for the same reason: too many high balances on revolving debt. Well duh, that is the point of getting a debt consolidation loan.

I have pristine payment history and household income is over $150,000 a year and have gotten really strict with not using credit cards unless we could pay it off that month or have an emergency (i.e. my wife’s mom passing last year and we were the only ones in the family with the financial capacity to pay for the services).

My Dad used LendingClub a few years ago and so with the latest decline at a main street bank (WF), I decided to give LendingClub a shot.

I applied for $40,000 loan. It’s been a few days so I called them, and they said it has been approved and that it is awaiting funding. I saw in your debt consolidation loan article that you will assist with funding. I was sure to click the LendingClub link via your website so that you get your referral fee. Could help get my loan funded please. My loan number is [ ]. Thank you so much!!

Mark

Answer:

Dear Mark,

I will certainly login and see if I can get in on helping to fund your loan. Over the years I’ve helped to fund so many.

I’ve been very impressed by the peer-to-peer lenders like LendingClub.com, which as you noted does pay me a referral fee which I have used to help fund these loans.

There are other groups out there as well like Prosper and SoFi. All of these groups are making unsecured loans to people who otherwise face a poor response from their local banks. A fact you discovered after trying a conventional approach.

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Now granted, if the borrowers credit has an issue the interest rate will be higher, as it is with any similar unsecured debt consolidation loan. But in my experience it is less than what a local bank will charge for a similar unsecured debt consolidation loan if they will give it at all.

Debt consolidation loans do have an advantage for that higher cost of credit. Unlike a home equity loan or some other loan that is tied to collateral, if you run into future financial problems you won’t lose your stuff.

Of course the key to using a debt consolidation loan wisely is to avoid running up additional debt while you are repaying your loan. I find that once people are hitting the wall and looking for a loan to dig themselves out, they’ve already experienced their teachable moment and most have learned a valuable lesson. It sounds like you have as well. And be sure to keep using your credit cards but keep them under control. Most abandon credit at this point and their scores go flat.

What I find ironic is if you look at the funding sources of peer-to-peer lenders you will discover more big business money is going into help funds these loans. Peer-to-peer lending has proven to be a way to unlock funding from behind the walls of local banks and democratize lending for the average person.

Moving forward I think we will see more credit scoring models that will become more forward looking than the historic models we have now that make judgments based on past performance. This will make it easier for more people to get access to credit when the future looks brighter than the past.

Congratulations on getting your loan and I’ll go hunt it down right now to help fund it if I can.

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About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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