September 20, 2016

Everything You Need To Know About Debt

By Jennifer Clark

Credit.Card.Cut

With more than 60% of Americans carrying some amount of credit card debt, debt consolidation can help you pay off what you owe faster and help to put you on a path to financial well-being. The first step is understanding what debt consolidation is and what it entails.

If you are struggling with debt because you have multiple credit card accounts and loans, you might want to consider debt consolidation.

Is debt consolidation right for you? Ask yourself these questions:

Do you have a lot of unsecured debt? Unsecured debt is any debt that does not have physical property as collateral against it, like your credit card bills. If you answered yes, then consolidation is a good option. Don’t consolidate against secured debt, like your home, or you may end up losing it if you miss payments.

What are the APRs on your credit cards? According to a recent report from CardHub, the average credit card rate is 18%, and with some cards starting as high as 24.09%, it’s important to know the APRs for all of your cards.

Do you have good credit? Your credit score will dictate how low a rate you can get. If you have a credit score of 640 and above, you might want to consider taking out a loan through Prosper. The loans are fixed-rate, fixed-term with no prepayment penalties.

If you want to explore consolidating your debt, here is what to do next:

Research a good credit agency. Many agencies have high service fees and interest rates that are comparable to other creditors, so do your homework. Look for an agency that belongs to either the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Set up a counseling session. A credit counselor can help you look at your finances holistically and identify the best avenue to reach your goals.

Do the math. Consolidating via a marketplace lender like Prosper can save you a lot of money. Let’s say you put a $10,000 medical expense on your credit card. According to Bankrate.com, if you just pay the minimum each month, it will take 28 years to pay off your debt, and you will end up spending more than $12,000 in additional interest payments. [1] Compare that to marketplace lending, where you could pay off your debt in three years with a fraction of the interest payments—savings could amount to more than $11,000.[2]

Know that your work isn’t done. Refinancing your debt is only the first step. As you would with a credit card company, make sure to stick to your plan to make timely, regular payments over the course of your loan term. Remember that your debt still exists—it just looks different (and a lot better!)

Make good choices about debt

Remember, your financial future and well-being rely heavily on the financial decisions that you make now. In order to learn more about financial wellness, please check out Prosper’s latest guide, Dollars & $ense, a guide to financial literacy and wellness.