Interesting idea utilizing LendingClub

[Nebulus]

I've been tossing around the idea of using LendingClub to get a grip on my debt and i had an idea that i wanted to ask here so someone with better credit experience could tell me if this is feasible or if it'll crash and burn horribly. I've heard lots of positive experiences using LC to consolidate debt and knock down interest, and it does seem to be an inticing deal. But my issue is that i have a current goal of getting my debt cut in half within 6 months (by working a second job, 15-16 hours a day for 75-80 hours a week), but it would be unreasonable to continue this past ~6 months. So i would be able to make some massive payments for 6 months, then afterwards i'd be able to pay ~10% more than the minimums.

The idea i had was this; take out a loan with LC, consolidate my debts and pay down as much as i can, then after 6 months apply for a card with good balance transfer rates, and "pay off" the loan using this card. A fail-safe is that i could "pay off" the loan with my current cards. The goal would be to try and get around paying hella interest after paying the debt down. I have a bad feeling that this is a horrible idea, but maybe someone could convince me otherwise lol

[Anonymous]

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@Nebulus wrote:

I've been tossing around the idea of using LendingClub to get a grip on my debt and i had an idea that i wanted to ask here so someone with better credit experience could tell me if this is feasible or if it'll crash and burn horribly. I've heard lots of positive experiences using LC to consolidate debt and knock down interest, and it does seem to be an inticing deal. But my issue is that i have a current goal of getting my debt cut in half within 6 months (by working a second job, 15-16 hours a day for 75-80 hours a week), but it would be unreasonable to continue this past ~6 months. So i would be able to make some massive payments for 6 months, then afterwards i'd be able to pay ~10% more than the minimums.

The idea i had was this; take out a loan with LC, consolidate my debts and pay down as much as i can, then after 6 months apply for a card with good balance transfer rates, and "pay off" the loan using this card. A fail-safe is that i could "pay off" the loan with my current cards. The goal would be to try and get around paying hella interest after paying the debt down. I have a bad feeling that this is a horrible idea, but maybe someone could convince me otherwise lol

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If you are really going to make huge payments for the first 6 months you will want to look close at the costs of interest in those 6 months from your current cards. LC charges a fee to start the account, so you are going to have to add that to the amount you borrow as well as interest on that fee as you pay. However if you get a lower interest from LC then you have now and carry it long enough to pay off that origination fee with saved interest it can be a good plan.

Another thing to consider is if in 6 months your Util is still too high to get a good BT card the loan from LC will knock that down, get your scores up where you need for the higher limit BT cards then you pay off the loan with those. If you really can cut your total owed by 50% within 6 months your Util should be below 50% by that time if you don't receive any CLD's.

You can always check what LC tells you for interest and origination fees (is a SP to see what you qualify for) and run the numbers through a spreadsheet.

[Nebulus]

Thanks for the response! Yeah i was planning on comparing the interest accrued. I do know the rate that LC offered (24.99% yuck), i just have to double check my card's interest rates. I believe they are in the 16.99% range so we will see. I didn't take into account the origination fee so i will definitely include that when i crunch some numbers. And my current util is at 93% which after 6 months i will be at ~45%, maybe a little lower.

[LuckyBird]

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@Nebulus wrote:

Thanks for the response! Yeah i was planning on comparing the interest accrued. I do know the rate that LC offered (24.99% yuck), i just have to double check my card's interest rates. I believe they are in the 16.99% range so we will see. I didn't take into account the origination fee so i will definitely include that when i crunch some numbers. And my current util is at 93% which after 6 months i will be at ~45%, maybe a little lower.

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If LC is offering 24.99 and your current cards are in the 17% range, PLUS there's an origination fee...I really can't see any benefit for you in going that route.

Why not do this:  if you're planning to work extra and use that money to reduce debt, continue to pay your minimum amounts due every month on all cards except the one with lowest balance.  Pay all the extra money to this one card, until you get it paid off.  Then move on to the next lowest balance, and apply all extra money to it until it's paid off; rinse, repeat. 

Some people advocate paying the card with highest interest first, but if all yours are in a similar range that really shouldn't matter much.  Plus, it can be a great momentum-builder to start getting some smaller balances paid off.  It gives you great motivation, and it frees up more money sooner to apply to the next-largest balance.  

[Anonymous]

I would nix the loan idea and just use your additional income from the second job to pay down your cards via the snowball method explained above. Whether it's loan debt or credit card debt, the way you get rid of it is by making the largest payments you can resonably afford. If it were me, I'd skip the loan altogether and just apply for the BT card after I pay down my original cards to 50% after six months.

If you get denied on the BT card at that time and you think the loan will lower your utilization and help you get approved, go for it. This way, your credit score will be better and you will probably qualify for a lower interest rate on an LC loan. Then, in case you still don't get accepted for the BT card, at least your rate will be better on the loan.

[DaveInAZ]

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@Nebulus wrote:

Thanks for the response! Yeah i was planning on comparing the interest accrued. I do know the rate that LC offered (24.99% yuck), i just have to double check my card's interest rates. I believe they are in the 16.99% range so we will see. I didn't take into account the origination fee so i will definitely include that when i crunch some numbers. And my current util is at 93% which after 6 months i will be at ~45%, maybe a little lower.

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Shop around for a loan. I did pretty much what you're considering last year. I was getting LC mail offers regularly so I tried them first, for a $5k debt consolidation loan they wanted 27%, I got the loan from Prosper for 10.89% last June, just paid it off with a BT on a new Barclay NFL card 0% for 15 months, I have it budgeted to pay it off within the 15 months. There's several other peer to peer lending outfits in addition to LC & Prosper, like Upstart, they all will pre-qual you for a rate with a SP.

[thom02099]

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@Nebulus wrote:

I've been tossing around the idea of using LendingClub to get a grip on my debt and i had an idea that i wanted to ask here so someone with better credit experience could tell me if this is feasible or if it'll crash and burn horribly. I've heard lots of positive experiences using LC to consolidate debt and knock down interest, and it does seem to be an inticing deal. But my issue is that i have a current goal of getting my debt cut in half within 6 months (by working a second job, 15-16 hours a day for 75-80 hours a week), but it would be unreasonable to continue this past ~6 months. So i would be able to make some massive payments for 6 months, then afterwards i'd be able to pay ~10% more than the minimums.

The idea i had was this; take out a loan with LC, consolidate my debts and pay down as much as i can, then after 6 months apply for a card with good balance transfer rates, and "pay off" the loan using this card. A fail-safe is that i could "pay off" the loan with my current cards. The goal would be to try and get around paying hella interest after paying the debt down. I have a bad feeling that this is a horrible idea, but maybe someone could convince me otherwise lol

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You've analyzed the situation and come to the right conclusion.  This and what others have advised.

Without knowing more about your total credit picture, one could state it's not a foregone conclusion that you would actually get a good BT card, with a high enough CL to justify the action.  If you take a HP for a card that only gives you a $1k limit, you've not done yourself any favours.

Lending Club (and others) can be a good resource for certain circumstances.  This is not one of them.

[Nebulus]

Thank you all for the input! The snowball method was the original intended plan, so i will stick with that, and apply for a BT card down the road. Sure enough, my current interest rates average at 17% so i would definitely accrue more interest with the LC loan. If i could get a loan with a lower interest rate, then it would not be a lost cause, but i'll just make payments the traditional way. Cheers!