Peer-to-Peer Loans for Small Business

Should entrepreneurs use Peer-to-Peer (P2P) personal loans to jumpstart their businesses? We think absolutely YES.  Entrepreneurs across the nation have turned to P2P personal loans to finance part or all of their business ventures because they are simple, less restrictive, quick and have significantly lower interest rates compared to traditional bank business loans.

P2P lenders want to help entrepreneurs.  Small business are the backbone of the economy, so when they win, everyone wins.  Big online P2P lenders like are offering “Business Loans” through their network of investors so entrepreneurs can reap the many benefits of their lending platform just as the personal borrowers are.  In essence, the loan process work in exactly the same way as a personal loan would with the small difference being that in the simple loan application (and when we say simple, it literally takes minutes to complete) the business loan borrower will state a brief description of the business, what the goal of the borrower’s business is and how everyone will ultimately benefit.  It’s that easy.

Lower rates than big bank loans.  Perhaps the most attractive selling point of using peer -to-peer loans are the lower interest rates.  There isn’t a large middle man (the bank) adding overhead and profit to originate and service the business loan. In P2P, the online lender is a much smaller institution and therefore charges a lower fee, in the form of an interest rate.  Just like at a traditional bank, since this is an unsecured loan, the interest rate of the loan is going to be based predominantly on the borrower’s credit score.  Later in this article we’ll give you a few tips to get your score as high as possible before you apply.

Most of the big P2P lenders that offer “Small Business Loans” apply the same terms and conditions as they do on standard personal loans.  In other words, you have the freedom to use it for whatever you want.  Traditional bank business loans are loaded with restrictions and often require a business plan to be submitted.  Also, if it is an SBA Guaranteed loan, count on even more requirements on the conduct of the business itself.  The reason why is in SBA Guaranteed loans, the bank gets a guarantee from the federal government that they will pay back a certain percentage of the business loan if the borrow fails to. Naturally, the government is going to want to mitigate their risk and impose a lot of rules.

If you are of the true entrepreneur spirit, the amount of strings attached may dampen your business plans and limit your flexibility as you establish and grow your business. Jump-start your business with fast, easy funding from investors that understand what you are going through because they have been there themselves. Entrepreneurs help other entrepreneurs- it’s a community.  Traditional banks issue loans to people that fit their strict criteria and place many rules and restrictions on the use of the loan.  With this said, we always recommend that borrowers first shop the loans available with P2P online lenders before walking into your local bank.

Ready to Apply for a Peer-to-Peer Business Loan?  Make sure you are positioned for success.  As stated before, the interest rate of the loan is going to be heavily dependent on the applicant’s credit score.  While it does not have to be perfect, or even great, we recommend you do your due diligence to make it as high as it can be.  Here our a few tips to do just that.

Improve your credit before applying for a loan with these 4 tips.

  • Check your score for correctness and dispute discrepancies.
  • Pay off revolving credit balances. If you have cash sitting in the bank that can pay off credit cards, do it. Your credit score will increase. If you run into an emergency, then use the cards to get out of the bind. But, to get the best P2P rate, get those credit cards paid off.
  • If you can’t pay your credit cards completely down, reduce your utilization ratio on each card to less than 30%. The credit reporting agencies will generate better credit scores for those individuals that do not over leverage their credit.   For example, if you have 3 credit cards where one is maxed and the other two are at 40% of their credit lines, instead of paying off the maxed out one, pay it down to 30% and pay the other two cards down so they are also within the 30% cap. Now your utilization rate is optimized to the reporting agency which will result in a better score.
  • Plan ahead. It will take 3 months for your credit scores to reflect payoff or changes in debt.  Know when you want to apply for your business loan and back into that date to make sure you have enough time.  Add in at least an extra month as a buffer.  The goal is to pull your credit a couple of weeks before you intend to apply  for the P2P loan and have it meet your expectations.

For detailed reviews on small business loans, feel free to search our Loan Shoot-Out comparison articles.  Best of luck on reaching your business dreams!


Want to Transition to Single Income? Here’s How.

Stressed Family Pic Single IncomeIs life getting too hectic?  Do you long for a simpler, more family oriented lifestyle?  Are you victim to these scenarios?

  •    Either coming or going; you and your spouse are “ships passing in the night”
  •    Haunted by a growing “to-do” list with no time to do it all
  •    Constantly taking time off work to pick up a sick kid(s) from daycare.
  •    Others raising your children instead of you
  •    Drained at the end of each week from trying to do too much in not enough time

My family was experiencing this and more.  Shortly after the birth of our first child, my wife went back to work, not knowing the hardships we would face.  As the stressful, unbalanced weeks carried on, the thought my wife staying at home started moving more and more to the forefront of our conversations.  Those conversations soon transformed into brainstorming and analysis meetings.  Within weeks, we had a plan.  This site talks about that plan and provides detailed information on how we were able to successfully transition to, and sustain a single income household.  It has been and continues to be, an extremely rewarding experience.  We are so much happier now and have never looked back!

The once commonplace single income household is becoming increasingly rare across our socio-economic landscape.  It has no doubt become a “two-income world”.  Unfortunately, in the face of increasing inflation and the aftermath of a recession, most families immediately dismiss the idea of shifting to a single income setup as simply impossible.  However, of all the people I’ve asked the question, if a stay-at-home parent yields more benefits to the family than two working parents, the answer was a resounding “yes”!.  But, having dealt with the daunting task of transitioning to a single income, I am here to tell you that it is possible in today’s economy, and it isn’t as difficult as one would think- if you plan it correctly.

When my first child was born, we placed him in daycare full-time, so my wife and I could continue on with our careers.  As the weeks went on, we began to see that daycare wasn’t the answer.  The most obvious of our concerns was that someone else was raising our child for us.  I would drop him off at 6:30 a.m., and my wife would get him at 5:00 p.m.  I would get home from work at close to 6:00 p.m., eat dinner and help with putting him to bed which was at 8:00 p.m., only 2 hours after picking him up!  Sound familiar?

Our son didn’t have the worst immune system, but it wasn’t the greatest, either.  He frequently got sick from the other kids at the daycare center.  When he was sick he would have to be picked up; this was 1-2 times a month.  It really adds up when you have to take time off work to pick up and care for a sick child.  The compounding effect of this juggling, sick or not, just added extra stress to our family.  Still sounding familiar?

By the eighteenth month of what I called the “daycare circus act” my wife and I sat down and made the commitment to take a hard look at making a stay-at-home situation work.  And, since we had plans to have a second child eventually, it made sense that the longer we waited, the harder it would be to do.  So this marked the beginning of our exciting transition to single income.

Tips for BEFORE making the transition: Budget reality check

 Ever notice how daycares are starting to spring up in every other strip mall?  This is a market reaction to the increasing number of children requiring care while mom and dad are at work.  For those of you that currently have kids in day care now, you know that it is a big business.  Depending on the area, costs for a commercial daycare centers run from $170-$245 per child, per week!  That can add up to be a substantial portion of your combined monthly income.  On top of that, there are the added costs of transportation to and from the center, late fees and added healthcare costs when (not if) they get sick.

To truly know the financial impact of daycare expenses on your overall budget, you will need to do a detailed evaluation of your budget.  Your approach should be an organized and documented. There are plenty of very useful budgeting software packages out there to choose from.  Select one that is simple to use.  Another option is to create a budget tracking spreadsheet on excel.  Be sure it tracks each category of spending (monthly bills, gas, groceries, entertainment, medical, etc.).  Be as detailed as possible so it is clear where your money is going each month.  Chances are you will be surprised at what you find.

Additionally, if you are in any kind of debt, revolving or fixed, figure in an aggressive payoff strategy.  Do not place minimum payments in your spreadsheet.  Make payments that will knock out the balance in 5 or less years.  In other articles I’ve written about the benefits of debt consolidation through personal loans.  This may be a valuable component to transitioning to single income by saving on the interest paid to credit cards, car loans or department store financing plan.  This is a marathon, not a sprint, so look long term at how much can be saved and stop throwing money away in high interest rates.  I’ve found that most families will remain a single income family for around 7 years.  With two kids, 2 years apart, starting school at age 5 means it will be 7 years until the youngest starts school full time and all-day day care is no longer needed.  Se what personal loans you may qualify for, crunch the numbers and see if it makes sense to consolidate.

With your current budget established, estimate what your single income per month will be.  This should be as real a number as you can make it; be conservative on bonus amounts and investment dividends.  The difference between your estimated single income and your current budget is, obviously, the amount you must reduce your monthly budget to make a single income setup work.  Don’t panic.  It looks worse than it really is, trust me.

You are now ready to construct your single income spending model.  The purpose of the model is to give you an accurate picture of what your new budget goals are as a single income household.

Constructing your Single income Spending Model

Eventually you will be applying the model to your actual budget to see if it works, and adjust it as needed.  Keep in mind, the bottom line will not change, only how you spend it.  Here are some tips to consider as you carve out your new budget:

  • Identify wants vs. needs.  When you’re not on a tight budget, the words ‘want’ and ‘need’ tend to blend together.  Now that you are embarking on the exciting and worthwhile journey of single income living, these two words will take on very distinct meanings.  As you go down the list of expenditures, discuss each one and determine if it is a ‘need’ or a ‘want’.  Opinions will undoubtedly vary, so be sensitive, listen and come to an agreement before moving on.  Every single piece of the new budget must be agreed to by all parties for the plan to be effective.
  • Identify areas in the predictable expenditures such as water, gas, electricity, cable or cleaning services and develop ways of eliminating or reducing those costs.
  • Savings and Retirement goals:  Since you’ve lowered your income, contributions to savings and retirement accounts may need to be modified to increase take-home funds.  If this isn’t necessary, then great.  But for most of us, a decrease will likely be necessary.  The point here is to find a compromise and to understand that as your salary increases (promotions, annual raises, etc.), so will your contributions to these accounts.  If you intend to return to a two income household in later years, let that also comfort you, as this is only temporary.
  • Establish a safety Net:  Emergencies can and do happen.  For these events it is prudent to give yourself a safety net of liquid funds.  Each family’s situation is different, so take a look at yours and think of any worst case scenarios that might realistically come to be.  Be sure that you have enough saved and available to draw from should anything happen.  If you don’t have enough saved, I would strongly suggest saving up to at least a minimum point before transitioning to single income.

Trial Runs

This is the most critical part of the planning phase.  Here you will take your spending model and apply it to your budget.  How long it takes to get it to work depends on how aggressively your change spending habits and modify your budget.  Don’t forget to make it a team effort; the transition will not be successful unless are involved agree to the plan and expectations are managed.  When modifications are made, the revised model must be re-tested and proved.  The first month my wife and I implemented the spending model, we blew it completely out of the water.  We learned very quickly that this was going to take more discipline.  It also presented a challenge and together we eventually worked through it.

Please note that every month seems to bring unforeseen expenses that you can’t really plan for.  Events like the car breaking, the air conditioner/heater needing repair, or medical bills are good examples. In my experience I’ve found these types of “pop-up” expenses occur nearly every month.  The easiest way to compensate and prevent surprises was to just plan for them.  A good way to handle it is to average your pop-up expenses over time and include that as a contingency fund for each month.  If it doesn’t get used at the end of the month it won’t be hard to find a place to use it.

Tips for AFTER you make the transition

Once your family has proved that the spending model is possible by living within it for a full month, it is time to move on to the next phase.  This phase includes monitoring, communicating regularly, continuous improvement and dealing with variances.  Your new budget is like a machine.  To keep the machine running smoothly and efficiently, it will require maintenance.

Monitoring Progress

Continue to use the software/spreadsheet discussed in phase I.  By now you should know the ins and outs of the program, as well as anyone else in the household that will be using it.  Make notes in the program, if possible, to remember issues for discussion during budget meetings.  I’ve found it to be helpful when I printed out the sheet from the month prior and made notes in the margins.  I would then post the marked up budget on the refrigerator so we all could be reminded of our opportunities for improvement during the current month.  It also helps to be able to see the numbers rather than just knowing that a particular budget category had an overage.


Schedule periodic budgeting meetings or “family meetings” where the state of the budget can be communicated and comments fielded.  We held ours twice a month, one mid month and one at the start of the next month.  The purpose of these meeting is to get everyone in alignment with the budget goals for the month, and not to be a dictator’s statement of law.  By listening and reacting to the input of your spouse or kids, you can better understand how to make the budget better.  As an example, I was having a discussion with my wife about reducing our cellular phone plan to add money to our monthly budget.  She was against this because she did not want to limit her conversations and text messages with her friends.  As an at-home mom constantly on the move, it was the only way she was able to maintain contact with friends and family.  Off that feedback, I then asked if it would be more acceptable if I reduced the TV cable service to a less extravagant plan, freeing up the same amount of money as a cellular plan downgrade.  It was an easy sell to my wife, because she was out of the house a lot of the day and we weren’t big watchers to begin with.  Because we discussed everything through, we were able to come to an equitable solution.

The meetings are also a great way to address budget issues.  By letting everyone know, family members are less likely to feel singled out.  What is important to remember about these meetings is that they are not a vehicle to assign blame.  Everyone should be working toward the budget, not against each other.

Continuous Improvement

What would any program be without continuous improvement?  Any system can stand to be better in some way.  As the months go by, look for opportunities to try new strategies.  If it should happen that it doesn’t work, then revert back to the original more efficient way things were done.  Improving support for your budgeting system is also a good idea. For example, you might have your spouse read an article or book containing motivational content or a story showcasing a poignant comparison.  By changing perspective or enhancing the one you currently have, the drive to press on can be strengthened.

The Occasional Bust

We are all human, and humans are not without fault.  Understand that, depending on circumstance and unforeseen events, there is a very real possibility that you may go outside of your budget.  The reason why, or with whom the fault lies should not be the main concern.  The primary focus should be on analysis of the situation and prevention of like situations, going forward.  Believe me, I have had my share of budget busts.  The hardest part was getting past whose fault it was.  Eventually, my wife and learned that the fastest and most efficient way to get past blowing the budget was to work together and develop a strategy to prevent future busts.

As an example, one month we were over our budget by about $150.  After we analyzed the numbers, it turned out that it was due to a few visits by me to Starbucks and a trip to the carwash.  Admittedly, Starbucks is my vice.  I do allot a few dollars a month to indulge in a Caramel Machiato from time to time, don’t get me wrong, but in this instance, I had clearly over indulged over the course of a month.  With regard to the carwash, that was plain and simply irresponsible spending.  I went in for a car wash and walked out with an upgraded detail and an oil change, among other things. Lesson learned!

A simple game plan for correcting busts is:

  • Establish the cause.  Emphasize teamwork and improving the system, not who is to blame.  Offer each other gentle suggestions on how one might remind the other to stay within the budget.
  • Map out your plan to pay the money back.  If it is a small amount, it may be possible to recuperate it from the next month’s budget.  If this is not possible, draw from your safety net to replenish the funds. Overages can and will happen, and that is what the safety net savings account is for.
  • I’ll say it again, Emphasize teamwork.  When everyone is on the same page, the likelihood of success is greatly enhanced.


Family walking on beach Single Income pic
Congratulations again, on your decision to transition to single income living.  It was a wise choice and will bring great rewards to the most important element or your life- your family.  My hope is that most, if not all of your doubts about successfully becoming a single income household have been dispelled.  As you start or continue your journey into this gratifying new lifestyle, please refer back to this article or others like it, to help keep you on course.  Most of all, have fun!  Enjoy the fruits of your efforts by celebrating milestones.  My wife and I have never looked back since making the switch to a single income living.  We have become closer and are much wiser with the way we use money.  I wish the same success and happiness to you and your family.

Types of Loans: The Basics

Types of Loans pic 1Exploring different loan options can be a daunting task. Before walking into your bank or going online to apply for that loan, we’ve laid out a comprehensive list of the types loans out available.  Not all loans were created equal, and as such, it will benefit you the borrower to have a basic understanding  of the framework for each type of loan.

Home Loans
Also called Mortgages, these loans are used to purchase residences.  They are long term and can be structured with a fixed or an adjustable interest rate.  Fixed interest rate mortgages do not change through the life of the loan.  An adjustable rate mortgage allows the interest rate to change according to commonly used indexes in the credit markets.  Often times, the loan will not adjust for the first few years.  For example a 3-Year Adjustable Rate Mortgage will not adjust for a full 3 years.

Unsecured / Personal Loans
Unsecured loans do not require collateral, only a signature.  In fact, they are often referred to as signature loans.  This loan type suits borrowers with no assets to use as collateral.  To mitigate risk to the lender, interest rates are slightly higher when compared to secured loans.  Proof of financial responsibility is required by providing a credit report. Personal loans can be obtained from banks or from peer-to-peer lenders like LendingClub and, where there isn’t a traditional bank to act as a middle-man to originate and service the loan.  The advantage of peer-to-peer loans is they carry significantly lower interest rates.  Having been around since 2007, these types of loans are widely used and trusted.

Secured Loans
A secured loan requires collateral to secure the debt.  The most common example of a secure loan is a mortgage loan.  The house is the collateral.  If the loan is defaulted on, the lender forecloses on the house to make whole on the loan. Another example is a car title loan.  The value of the car is put up as collateral by conditionally giving ownership of the vehicle to the lender.  Secured loans will have lower interest rates than unsecured loans due to minimized risk to the lender.

Student Loans
Student loans are not unlike unsecured loans.  The difference is that they have significantly lower interest rates due to subsidies from the government.  Additionally, repayment is deferred until the student graduates.  Lenders of these types of loans can be public or private entities and can be granted to parents or direct to the student.

Cash Advance / Payday Loans
These loans are as the name implies.  They provide relatively small amounts (similar to your paycheck amount) that must be paid back quickly (typically within 2-weeks, like the time between paydays).  They carry high interest rates due to the very quick term and high risk of default.  Payday loans can be obtained online in minutes.

Business Loans and Business Lines Of Credit
These types of loans are obtained from a bank. They can be either secured or unsecured and are for large amounts ($100k-$1M) because they are intended to help start or boost an existing business. The process for getting approved for a business loan is lengthy.  They require business plans as proof that the loaned funds are not at risk of default.
A business line of credit is a commercial loan with greater flexibility.  Funds may be withdrawn and paid back in an ongoing basis- basically it’s a credit card on a large scale, for a business.

Retirement Fund Loans
Borrowing from your 401(k) is another option and is not an uncommon occurrence.  According to the Employee benefits Institute (EBRI) Dec. 2012 Issue Brief, at year end 2011, 21 percent of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts.
How dose it work?  Start by talking with the retirement program manager at your company.  Companies are required by law to allow loans against retirement funds, however, the company may place restrictions on how the loans are used.  Typically, they authorize loans against plans for education expenses of the immediate family, to purchase a residence or medial bills.  The amount of the loan by be up to 50% of the vested account balance but not more than $50,000.  Processing the loan will also incur fees, but they are minimal.  Loan rates vary, but prime rate plus one point is a good rule of thumb.

So there you have it, a list of the most common types of loans and how each of them works.  Keep in mind to consider all facets of the loan and not just the interest rate.  The term of the loan, fees and special rules must also be considered. For more information on these loans and others, please search our articles.  We no only delve deeper into each type of loan, we also review the top lenders.

5 Reasons to Consider a Peer-to-Peer Loan

In the Beginning, There Were Banks…

The first commercial banks in America was established around 1797.  Today there are about 7,500 traditional banks in operation, according to the FDIC.  Needless to say, commercial banking has become a very widespread service industry which, up until 2007 was the only show in town with regard to borrowing money (legitimately, anyway). launched in February 2007 providing a different way to borrow money; from one person to another unrelated person, or peer.  Peer-to-peer lending was born, or P2P for short.  The two largest P2P lenders today are Prosper and LendingClub. All together, they have facilitated over $1B in notes to people in need.

Peer to Peer lending simply allows investors to lend money to other people without a bank to originate or service the loan. The lending company, such as Prosper takes care of it all but for a much smaller fee. (Prosper has 80 employees, Wells Fargo has 272,000)  The P2P lender categorizes the perspective borrower based on their credit history so that interest rate and term options can be established.  Finally, the applicant states on their profile the reason for their loan request to help the investors in the network decide whether or not to contribute to that particular loan.  The entire transaction is completed online for both parties.  Since there isn’t a financial institution acting as the middleman, interest rates are significantly lower than traditional loans from a bank. And with the recent scandals of the investment and banking industry, lending alternates are a welcome concept.
Personal Loans Handing Money
So why should you consider a Peer-to-Peer Personal Loan?  Here are 5 Good Reasons to help you consider:

1.  Speed.  Apply in minutes. Get the money in a couple of days.  The application process is completed online in minutes.  First you choose the loan amount, enter the purpose and post it.  Investors review the listings and fund the listings that meet their criteria.  Within days the money is deposited into your account.  It ‘s that fast.

2. Lower Interest Rates.  No bank fees and overhead to markup the final interest rate.  P2P loans start at rates of around 6% for a 5 year term.

3. Bypass the Banks.  Big bank scandals and bailouts have caused consumers to question the integrity of big banks.  Why not cut the middle man out of the equation all together an borrow from individual investors that want to help you.

4. Use the Money For Any Purpose.  Common uses are Debt Consolidation, Education costs and Home Improvements and repairs, however the loan may be used for any reason at all.

5. Simplicity.  Apply online. Wait a few days. The money shows in your account.  Done.     Rates and amortization are fixed, so no hassle of adjusting loans or hybrids.


Staying Positive: Pay Down Debt With a Smile

Personal Loans Paying off debt with a smileThe road to becoming debt free is often a long and trying one.   Logically we understand the multitude of reasons why paying off certain debts, or all of them, is a wise endeavor.  Why then, do we hit so many speed bumps along the way making it seem like we will never get there?

I remember when I graduated from college I made a promise to myself that my number one financial priority was to pay off my $15K college loan.  I had a good job lined up and a solid budget setup ready for execution.  I think you know where this story is heading.
Fast forward to a few months later and the student loan bills started coming in the mail.  By then I had gone a few trips with friends, purchased some furnishings for my meager apartment and in general had been living the adventurous post college life.  When I went to write a check for the student loan I realized I did not have enough to cover the payment.  I wanted to panic.  Of course I didn’t, instead I redid my budget and had to cut out a few “wants” out of my budget that weren’t real “needs”.  Over the years I’ve come up with a few techniques that have helped me stay positive and successful in paying off debts.  Use these techniques and watch that school loan, car loan or credit card balance become a thing of the past.

My Top 5 Techniques for Paying Off Debt With a Smile

1.  Set Realistic Goals.  This is number one on my list for a reason.  It’s just like setting fitness goals.  While it might be possible to get 6-pack abs in a month, it would be extremely difficult, require immense sacrifice and your social relationships would take a beating.  I’m sensing that you know exactly what I’m talking about.  The same goes for eliminating debt.  It’s a marathon, not a sprint. Enjoy life along the way.  Consolidate your loans into one, with a long enough term so payments don’t drastically impact your lifestyle.


2.  Monitor Progress.  This means setting up checkpoints or milestones as you make your way toward being debt free.  A good milestone would be to keep a spreadsheet and make monthly prediction of where you want your balances to be.  If you hit them with ease, try increasing your payments.  If you miss them or struggle to hit the mark, adjust your payment amounts and see how it turns out the next month.  There will be an element of trial and error to find the sweet spot.


3.  Do What You Love – Frugally.  Instead of cutting out hobbies and interests because they are “too expensive”, try finding ways to do those hobbies for less.  Switch to a less expensive gym, invite friends over instead of going out or buy your gear off craigslist instead of new. I like mountain biking but realized I could get a lot of parts on craigslist for a fraction of what it would cost me new.


4.  Educate Yourself.  I have found it easier to stay focused when I continue to learn about all the tips and tricks for paying off debt. Trying new things is fun and exciting, right? There are hundreds of blogs out there by people just like you!  Knowledge is definitely power when it comes to money.


5.  Don’t Give up.  This one sound cliché, I know.  I had to put it on here because this little saying has gotten me through all of life’s struggles, not just the ones concerning money.  I heard a very successful entrepreneur say in an interview “I’m sitting here in this interview instead of you because I out-worked you.  I’m not smarter or luckier- I just worked harder than you did.”  Getting to your debt free goal is going to take work.  When you start to feel de-motivated, remember all your other achievements and the work it took to get there.  This is no different.

Now go forth and conquer….with a smile.

Personal Loans Vs. 0% Interest Credit Card Balance Transfer Offers

We’ve all been there. The holidays, birthdays, car repairs, vacations, (the list goes on), have caused us to become financially over extended.  Before we known it we’re looking at multiple credit card statements with balances that will take years to pay down.  Rest assured you are not alone and there is relief around the corner.  We reviewed two of the most popular methods to overcoming credit card debt.  Hopefully this will help you decide the best approach to becoming debt free.

Personal Loans Stamp PicThe two methods we looked at were 0% Interest Credit Card Balance Transfer Offers and Personal Loans.  Almost monthly it seems, credit card companies are offering 0% interest rate balance transfer offers to help you consolidate your credit card debt and get out from underneath them.  At the same time, online personal loans have become the fastest growing  segment of the lending industry. They are simple, quick and provide 48-60 month terms.

Personal loans have become an extremely accessible and effective means for people to pay off debt.  They are unsecured, meaning no collateral is needed.  Home equity loans or auto title loans are examples of secured loans where the house or the car value backs the loan.  Additionally, they have less impact on your credit score because they are not categorized as revolving debt.  Revolving Debt is basically an account that does not need to be paid in full.  Partial payments are accepted but with a fee in the form of interest.

Personal loans are not without their drawbacks.  While getting an online personal loan is extremely easy, the terms of the loan are directly set by the borrower’s credit score.  A good score means lower interest rates.  Typical loan terms are from 48-60 months. Another drawback of the personal loan worth pointing out is that the borrower may be eligible for a higher loan amount than needed and because personal loans can be used for whatever the borrower wishes, there will be a temptation to grab a little extra cash for a new gadget, updating the wardrobe or going on a vacation.

Here is a summary of pros and cons of Personal Loans.

Personal Loan Pros:

  • Longer terms than credit card offers.  36-60 months is typical.
  • Can all be done online in minutes, with cash in your account in a few days.
  • Not a revolving dept on your credit score
  • Fixed interest rate.
  • Can be used

Personal Loan Cons:

  • Based on credit: the better your score the lower the interest rates
  • Temptation to over-borrow.

Now lets look at credit card balance transfer offers.  All the major companies have these offers and depending on your situation, they can be a very wise solution for consolidating credit card debt and paying it off fast.

We looked at 3 companies with these offers, all of which provide 18 months of 0% interest, unlimited number of card balance transfers and purchases, and a fee of 3-4% for each transfer.  These terms are pretty standard and have been around for decades.  The application process can be done all online with the transfers occurring in a few days.

So how do these balance transfer offers work?  They are credit cards, plain and simple.  They work in exactly the same way as any other credit card.  You are essentially using one card to purchase the balance of another card.  If in the 18 months the entire balance is paid off, you are debt free and only paid the one-time 3-4% fee.

The success of using this the 0% credit card is based on  the assumption that 18 months will be adequate time to pay off the total debt.  If it is not, or if it does not leave enough margin for unforeseen conditions, the borrower is at high risk of not paying of the principle balance in time.  If that happens, the interest rate adjusts from the 0% to 16-20%!

Here are the pros and cons of 0% Interest Credit Card Consolidation Offers.

Pros of Credit Card Balance Transfers

  • 0% interest is 0% interest.
  • 0% interest cards are abundant and relatively easy to qualify for.
  • Some 0% offers have terms of up to 20 months.

Cons of Credit Card Balance Transfer

  • The reason you are interested in doing a balance transfer is likely because you were unable to pay off the balance each month.  18-20 months may not be a realistic pay-off term.
  • If the borrower goes beyond the term, the interest rate skyrockets.
  • Most of these offers allow you to make purchases on top of your balance transfers at the 0% interest, so you may find yourself with a much larger principle amount that expected and not able to pay it off in the term.

So which one is best for you?  Start with these basic questions.  Is 18-20 months enough time to pay off the full amount of the balance transfers? Honestly, is it? If the answer is ‘Yes’, then a 0% Credit Card Balance Transfer may be the best choice for you.

If 18-20 months is NOT enough time to realistically pay off the transfer amount, then a personal loan makes the most sense.  Regardless of interest rates, the key to getting out of debt is to stay in the black every month.  Smaller, more manageable loan payments over a term of years instead of months may be the only way to achieve that.