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Credit card debt looms like a dark cloud. The cloud is colored red in honor of all the red ink the debtor’s finances are drowning under due to high rates of interest. Something really needs to be done to fix things without any more procrastination.

Consolidating debt is one viable strategy to start the process of finally paying off unwanted and burdensome debt. Not every consolidation plan is best — or even viable — for everyone. For those seeking an option, peer-to-peer lending could create a route for possible consolidation strategies.

Lending Club and Proper are two such peer-to-peer lenders. Would they be worth it to someone who wished to consolidate heavy amounts of credit card debt?

The Business of Peer-to-Peer Lending

Peer-to-peer (P2P) lending refers to private transactions between two parties. Borrowers go to a peer-to-peer lending company to seek a loan. Those approved by a preliminary screening find their loan application placed in a queue for investors to review. Private investors who approve the loan put their own funds forward with the intention of receiving a nice rate of interest on the repayment.

Interest rates are not very low. Applicants who go to the Lending Club or Prosper likely have credit scores making them bad options for traditional lenders. High credit card balances scare off banks and credit unions.

Factors to Weigh

Getting the best results from working with peer-to-peer lenders relies on a number of factors. Two of the most important factors to weigh are the available interest rates and the ability to pay off the debt.

If the P2P lending rates are less than the rates being affixed by the credit card companies, then the new loan definitely would be worth considering. One of the greatest obstacles to paying off debt would be the high, almost punitive, interest rates the credit card companies charge. Cutting down on interest rates speed up payoffs.

All this is true provided another factor comes into play. The borrower really does need a reliable payment plan and stick to the path. The purpose of a debt consolidation loan is to get rid of heavy financial obligations. Those who are not incredibly serious about paying off the new P2P loan and make the necessary budget changes to do so won’t be thrilled with their eventual end results.

Overall, the new loan has to be cheaper and provide a more reasonable and viable means of getting rid of credit card debt. The borrower has to do his/her part as well and actually pay down the debt. Otherwise, the process is nothing more than an exercise in shuffling funds.

Applying for a P2P Loan

Anyone wishing to apply for a peer-to-peer loan does need to meet credit score requirements. Lending Club and Prosper’s minimum requirements are very low. In fact, both only require credit scores in the 600 range. Neither lenders may offer loans in certain states. Applicants do need to check if their location and residency ban applying.

Those who are able to apply should conduct further research into how the companies work.