"How I got out of credit card debt with peer-to-peer loans"

Plus: Have you read your half-year horoscope?

Jun 27, 2024

Money on my mind

How I used a peer-to-peer loan to get out of credit card debt

I remember getting a sinking feeling just after a spring road trip to Memphis and Nashville — how much did that vacation dig my debt hole even deeper? It was the spring of 2006, and I’d been out of grad school about three years. It was long enough for me to accrue chunks of credit card debt from a lot of life events:

I moved to Chicago.
It took me three months to find a full-time job.
That job paid only $13 an hour – after taxes, just enough to cover my rent.
My cat got very sick and I spent $1,000 at the vet in one night, and the next day had to put her down.
I moved again (to an apartment I then shared with a roommate).
I got a new job! That paid $22 an hour.

But I also used that card for things like going out to dinner, buying a cute new top, or just making sure a purchase didn’t drain my bank account. Paying the credit card bill later, however, was a struggle. I never paid my whole balance, only a few hundred dollars a month.

Scarlett O Hara Tomorrow Is Another Day GIF

By the spring of 2006, I was about $13,000 in credit card debt and didn’t have much of a clue how to get out of it. I had money, kind of – I was in better shape than I had been right out of school. I paid my utility bills on time as well as my rent, but at 15-something percent, the interest rates on my Mastercard were enough that my meager $200-something monthly payments weren’t doing much but treading water in my debt pool. And that was only if I didn’t add more charges to the card that month (like during a fun trip to Tennessee).

In fact, when I calculated it, my debt at that percentage rate was going to take me over 11 years to pay off – again, only if I never used that card again.

What got me to finally take some action to get out of debt

I remember the phrase coming out of my then-boyfriend, now husband’s mouth: “You can’t keep sticking your head in the sand about this. You have to do something to work out of it.” That image – an ostrich avoiding trouble by plunking its head down in a hole – really stuck in my mind.

I also realized that I didn’t have a good relationship with my debt. I had student loans from grad school, and I remember just thinking, “Oh, la de dah,” when I was in that mandatory loan meeting near the end of my Master’s program. I assumed good-paying jobs would just happen and I’d have tons of money to make my payments. Credit card debt didn’t seem any different. The universe would somehow provide me with enough money to do the things. But that’s not what the 2003 economy had in store for me, a poet with two degrees.

When you need help, sometimes you have to crowdsource it

At that point in time, I didn’t have any assets I could sell to get out of debt, nor could I see a bank giving me that much money for any reason. But what I did find was a website where people could invest in your debt and help you pay it down at a lower rate than your credit card offered.

This is called “peer-to-peer lending” – and it’s not something we typically think about using for debt reduction, or at least I didn’t until I tried it. For me, someone with pretty good credit and a rather OK-paying job, peer-to-peer loans had real promise. I had always paid minimums on my student loans even when I couldn’t afford much more than paying off the interest, and I paid my utility bills and medical bills (even though some of those had ended up on that Mastercard).

“Peer-to-peer loans can be a reasonable choice when traditional loans are not an option, or you think you can get better terms from a P2P loan,” writes Eric Rosenberg at the Associated Press. “They are particularly beneficial for borrowers with good credit who can secure lower rates or for those who need funds quicker than what traditional banks typically offer. P2P loans are also worth considering for debt consolidation or funding personal projects where a structured repayment plan is desirable.”

Think of P2P loans like a Kickstarter – another peer-to-peer style funding plan – but they’re for something you’ve already done, not something you’re planning to do.

Have you taken our reader survey yet?

It’s a win-win. You tell us what’s on your mind, the topics you want us to cover, and you’ll be entered to win prizes from our GALs at NNABI and Menopod.

Take the survey

P.S. We won’t sell your data. Details here.

Happy almost half-year!

How’s your 2024 treating you so far? We’re a coupla days away from the half-year mark. Not sure about you, but I love to check my 2024 horoscope to see how spot-on the predictions are. — Amy Cuevas Schroeder

Read your 2024 'scope