I'm giggling at today's blog. Talk about contradictions...first point to get out of debt, per the author, is to stop borrowing. Second point is to get a debt consolidation loan with an editor's note that Prosper is an excellent way to get a loan.
Stop borrowing! Get a loan! Use Prosper!
In a thumbnail sketch, the ways out of debt are:
- decrease expenses, and/or
- increase income
By the time one is talking about getting out of debt, usually the interest is already a significant expense, so it makes sense to restructure debt to reduce the interest rate,
if one is able to do so. In fact, the only listing I had bid on in the past few months is precisely that: refinancing debt at a lower interest rate to reduce the cost of debt so the same dollar amounts in payment can pay off more of the principal.
Unfortunately, not all second loans are created equal. A survey did for the FDIC showed that, of about 1,000 borrowers of high LTV loans, 70% were back in credit card debt within 12 months. Statements made on The Motley Fool web site in the "Credit Card / Consumer Credit" forum confirmed approximately the same ratio: about 70% of those who got loans to take care of existing debts ended up being further in debt within a year or so, and windfalls, if any, were just temporary relief.
What is common about the 30%? They have a
debt elimination plan and what new loans they take out or credit card offers they make use of are stepping stones on that plan, that is, restructuring debt is for reducing interest rates so more dollars go to principal instead of interest.
Unfortunately, a lot of people can "talk the talk" without "walking the walk", so it is hard to tell over the Internet whether someone really has a debt elimination plan or is just talking like one has one.
But to just say "Get a Prosper loan"
can be more destructive than good without a plan in action.
