I have a confession to make. I’ve been guilty of carrying a balance on my credit card from month to month almost continuously since I first started using credit cards. I’ve given up tons of my own hard-earned money in interest charges to wealthy banks who surely didn’t need the money as much as I do.
It’s a bad habit and I know it, but I thought, “What’s the harm? I already know I’m not going to be able to pay off the balance this month anyways, so what’s a few more charges? Why stress myself out about it?”
Interest charges haunted me
The problem is that even though the interest charges might seem small, over time they add up. It’s easy to rack up hundreds of dollars in interest charges each year with even only a meager balance on your credit card.
This cycle ended six months ago when I took out a personal loan to pay off my credit card balance. Since then, I haven’t paid a dime in credit card interest charges.
Lending Club vs. Prosper
I started the process by shopping around for rates. I had heard good things about two companies in particular, and this is where I began.
Quick Tip: Your personal loan approval depends on your credit score. See your free credit score on Credit Sesame.
The first place I checked out was Prosper. Their rates are between 5.99 – 35.97% fixed APR, with a loan origination fee of 1 – 5% of the loan amount. I plugged in my information and they performed a soft credit check so that it wouldn’t affect my credit score, and it popped out a rate. I noted it down and moved on to the next company.
Lending Club was the second place I tried, and it had similar terms to Prosper — rates of 5.99 – 32.99% fixed rate APR, and a loan origination fee of 1 – 5%. After plugging in my information with Lending Club, however, it gave me a slightly lower rate than Prosper.
One more personal loan to consider is from SoFi
If I were to do this again I’d be sure to check with a few more companies, including a company called SoFi.
SoFi started out in the student loan refinancing world and only just branched out into offering personal loans. The thing that I really like about them is that they prioritize social responsibility and seem to have a heart — an oxymoron for a loan company if I ever heard one, but stick with me.
SoFi is unique because they offer unemployment assistance if you lose your job. They’ll work with you and actually help you get a new job, rather than leaving you out in the cold.
Their loan terms are also a bit different — you can choose either fixed rates from 5.70 – 14.24% APR, or variable rates from 4.79 – 10.89% APR. They also do not charge a loan origination fee.
Here is a table that breaks down the comparison of Lending Club, Prosper and SoFi:
|Fixed Interest Rate
|Loan Origination Fee
|5.99% - 35.97%
|1% - 5%
|5.99% - 32.99%
|1% - 5%
|5.5% - 10.49%
|No origination fee
Which personal loan I chose
From the two companies I compared, I decided to go ahead and take out a loan with Lending Club because they offered me lower rates. I hit “accept” and sat back to see what came next.
Because peer-to-peer loans rely on people to voluntarily choose to fund your loan, you don’t get the money instantly. Lending Club creates a listing with your relevant details that prospective lenders can see (your identity is kept confidential), and they can choose to give you money in $25 increments.
I was a bit nervous that maybe my loan wouldn’t get funded, but apparently this is pretty rare. I logged in periodically to check on the funding status, and each time I could see a little map of the United States, with little dots and a dollar amount showing where my lenders where located and how much they were funding me for.
After I applied
Within a few days, my loan was fully funded and shortly thereafter the funds appeared in my bank account. It was a bit thrilling to see all that money in my account, but the feeling disappeared shortly when I paid off the credit card.
It was right around this time when I decided that I would take a stand. I didn’t want to be caught in the credit card trap anymore, and so I decided that I would learn to manage my money better. I found out the first step to take is learning how to budget.
I’ll admit, it’s not the most fun thing to keep track of all your purchases, but at the end of the day I am seeing positive results.
It’s been six months and I’m no longer living paycheck-to-paycheck.
I’ve saved up enough money for my husband’s tuition next semester, and we’re working on an emergency savings fund so we don’t need to use credit cards or take out a personal loan again if anything bad happens.
Most important of all though, is the fact that I’ve broken myself of a bad habit I’ve had for years. Even though I had to pay for my personal loan, the fact that once the loan is paid off I’ll never have to pay credit card interest again (as long as I keep up my new practices) is priceless.