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Warn college students about credit cards Chicago Tribune As students go off to college some parents give their kids a briefing on sex and others warn about drugs. But amid all the goodbye hugs and warnings, … and more »

jpmorgan Chase – The Best Credit Cards Out There? Subprime Blogger jpmorgan Chase & Company has shown great strength through the last few months. One of the biggest and best credit card companies out there is up over 120% … and more »

Clarkstown cops charge 2 with stealing credit cards from car Lower Hudson Journal news NEW CITY -[0x0f]Clarkstown police yesterday arrested two young men on felony charges after …

Bad Credit Debt Consolidation – Get Out of Debt Quicker! Subprime Blogger Bad credit debt consolidation is a very good way to get out of debt quicker. The process is not as hard as it may seem and it will greatly help you to lower …

Communities with walkable neighborhoods command higher home prices than similar properties where a car is required for getting around, according to a recent study of 15 major urban areas.

A while back, I covered the world of social lending, when I was relatively new to the whole peer to peer lending premise. Now that I’ve become much more familiar with it, and have had some time to see how things operate in this field, I’ve decided to review how the industry’s been doing so far.

If you’re not familiar with the peer to peer lending concept, it’s a way to lend and borrow money through an online network. This lending platform basically matches borrowers and lenders such that borrowers get their loans funded at usually much cheaper rates (vs traditional lenders such as banks and credit card companies) while lenders (also called investors) earn a rate of return on the money they lend with the potential to beat investment returns from other avenues.

List of Peer To Peer Lending Networks

Here’s a quick introduction of who’s who in the peer to peer lending space:

1. Lending Club
The buzz on this lending network has been pretty positive: they’ve recently passed the $50 million mark for issued loans. I know a few bloggers who’ve been making good money by investing in Lending Club (one even mentioned how it was his best investment over the past year). They’re a company that started in mid 2007, with the following statistics:

• approaching 25,000 investors sometime this month,
• lent out $51,213,250 to borrowers to date,
• distributed 2,627,146 payments to investors, and
• paid $3,470,391 in interest to investors.

Here’s a little graphic that shows some statistics on Lending Club, a leading peer to peer site:

For more details on them, check out the various articles I’ve written about this company:

• Lending Club Review: A Leading Peer To Peer Lender
• Lending Club Return On Investment: Should You Invest Via Direct Lending?
• Personal Loan Interest Rates from Lending Club

2. Prosper
This company’s approach to peer to peer lending involves using a loan auction model. Unlike with Lending Club, where the company screens for qualified borrowers and grades loans based on a borrower’s credit risk profile, Prosper allows the loan network (marketplace) to set the rates through bids. Prosper is the 800 pound gorilla in this budding industry, thanks to a business model that is less restrictive to borrowers. While this opens the floor to more available loans in the network, there is more potential risk for default by borrowers with less favorable credit histories.

3. Loanio
Loanio is another player in this field, but if you visit their site, they’re in a “quiet period” right now, as they work through SEC regulatory checks (both Prosper and Lending Club have successfully passed SEC reviews already). So for now, you won’t be able to open an account or apply for a loan on their platform until further notice.

4. Pertuity Direct
Pertuity Direct started out in January of 2009 and seemed to show some promise: they offered a loan approval process that would be quicker and easier, they set the rates themselves and also performed their own credit checks. If you’re a lender, you would be investing via a mutual fund called the National Retail Fund, which invests in consumer notes that represent Pertuity Direct loans. But why am I speaking of them in the “past tense”? Because there are rumors that they’ve gone under. Supposedly, there was a shareholders’ meeting a few days ago “to approve the liquidation and distribution of all shares of the fund (National Retail Fund)”. And when I called the number on their web site to check, I was referred to Gemini Fund Management, supposedly a transfer agent for the National Retail Fund. Are they really gone? Stay tuned for the next chapter!

State of The Peer To Peer Lending Industry

The first time this “industry” came to light a few years ago, there was a lot of hoopla about just how successful and big it was going to get. With the credit crisis taking over the last few years, social lending couldn’t have come around at a better time. But as you can see, this industry is fairly new and still experiencing some challenges and growing pains.

Peer to peer lenders have been closely scrutinized by the SEC to ensure that they comply with regulations in order to protect consumers. This is not surprising, given that consumers are dealing with unsecured and uncollateralized loans with rates dictated by an open marketplace (at least in Prosper’s case). The good news is that several companies have emerged from the SEC review process and have been operating pretty successfully for a while now, with business booming!

Peer To Peer Lending Investment Returns

For now, the bigger guys (Lending Club and Prosper) are growing and appear to be doing quite well. According to Lending Club, their default rates have remained very low with their most conservative loans (the Grade A loans) having had NO defaults in recent months (click here for their historical default rates). If you’re an investor seeking to diversify beyond the boundaries of traditional investments, then peer to peer lending offers a fresh, alternative way to invest your funds.

The returns here have been pretty attractive with statistics boasting a 9.6% average annual return for Lending Club and 7.06% for Prosper. Top investors at Lending Club have managed an even higher return of between 12% to 13% a year, with individual investment loan portfolios topping $2,000,000! It’s definitely worth a look if you’re interested in a new kind of fixed income investment which can serve as a nice diversifier for your overall portfolio.

Peer To Peer Lending: Lend Money And Invest

In the recent GRS reader survey, one common request was to delay the weekly podcast announcement until after the show so that I could provide a brief written summary for those who don’t have the time or the inclination to listen. That means I can’t provide a reminder for people to call in during the show, but it may generate more discussion here on the blog.

A millionaire by 26
This week, Jim and I spent the hour talking with Erica from erica.biz. Erica dropped out of college to start a webhosting company in 2001. She was 20 years old. Seven years later, that business was bringing in $76,000 of revenue every month.

Despite this revenue, Erica nearly ran her business into the ground. She wasn’t paying enough attention to the numbers. The company was losing money and the employees were unhappy. To stay afloat, the business raised its rates. Erica was able to pay off the company’s debt, and ultimately she sold her business for $1.1 million.

During our conversation, we discussed the following topics:

• Ask to be paid what you’re worth. If you work at a traditional job, learn how to negotiate your salary. If you’re a contractor or a small business owner, don’t be afraid to set your rates at a level that values your time. Be confident. Know your value. Be able to articulate why you’re worth it.
• Treat your personal life like a business. Your goal should be to make a profit. When you buy things, make sure you’re getting value.
• Constantly improve yourself. After she sold her business, Erica began to read about investing. She signed up for seminars and courses. She read personal development books and sales manuals. She pursed self-improvement. (This is something I do, too, and I think it’s one factor in whatever success I might have had.)
• Manage time effectively. Baker called in to ask us about our time-managment systems. Erica has actually produced a video that describes her pencil-and-notebook organization system. Jim also pursues a most-important task every day. I recommended the book The War of Art by Steven Pressfield.

Erica may have hit the jackpot with her business, but she’s not resting on her laurels. On Tuesday, she’s launching an e-book about building a blog (which will be available on her website). She also recently started Inspiring Innovators, a site to help people create online businesses.

Our guest on next week’s show will be Flexo from Consumerism Commentary.

The Personal Finance Hours
Jim and I host The Personal Finance Hour nearly every Monday at 3pm Pacific (6pm Eastern). For the next week, our conversation with Erica will be available via this widget (after that it will be replaced by the next episode):

You can always find this show (and other episodes from the archive) by following this link, which will open in iTunes.

—
Related Articles at Get Rich Slowly:

• The Personal Finance Hour, Episode 11: Frugal Weekend Fun
• The Personal Finance Hour, Episode 12: Earning Extra Money
• The Personal Finance Hour, Episode 4: Couples and Finances
• The Personal Finance Hour, Episode 3: Finding Balance
• The Personal Finance Hour, Episode 8: Pets

FINS reporter Kyle Stock writes:

Is the government shrinking your nest egg?

The government may lower the maximum contribution limits on 401(k) retirement accounts. Yes, you read that correctly: lower. At the same time, 2010 will probably be the first year since 1975 that the government does not grant a cost-of-living increase to social-security recipients.

So, what gives?

Relatively low inflation is the culprit. The IRS sets the annual 401(k) contribution limit by comparing the third-quarter consumer price index to its historical level.

Social security benefits are also ticked up every year, based on the similar CPI data and average wages. This year, for example, the government tacked 5.8% onto benefit checks. And inflation these days? Well, there isn’t much of it to speak of. The consumer price index in July was 2.1% below its year-earlier level, dragged down by decreases in energy prices.

These changes would come at a rare time, a possibly fleeting moment when Americans are actually looking to build their nest eggs. The personal savings rate in the second quarter spiked to 5%, its highest level in a decade.

For workers under 50, the 401(k) cap might drop from $16,500 to $16,000, while people 50 and older could see their contribution limits fall from $22,000 to $21,000, according to analysis by Mercer LLC, a New York-based HR consultancy. We’ll find out about both 401(k) limits and social security levels in mid-October. The issue could, however, be a moot point. After all, when was the last time you socked away $16,500 a year? And if CPI can be trusted, the same old social-security check ought to buy more than it has been.

Wallet readers, how much are you saving these days? Will the caps affect you?

More reading:
-Social security cost-of-living increases

-The Bureau of Labor Statistics’ July consumer price index

-Personal savings rates, by month

People looking for debt consolidation strategies often turn to loans to combine their debts. In cases where someone has several credit card balances or other debts, a personal loan could allow him or her to lower the overall interest rate and monthly payments.  But what about that credit card offer that came in the mail with a low interest rate for transferring a balance? Here are some things to consider when choosing between personal loans and credit card advances for debt consolidation.

Unsecured Personal Loans

If no collateral is required, the money being lent is an unsecured personal loan. Because banks are assuming more risk with unsecured loans, interest rates are generally higher than on those that are secured. Although personal loans usually have a lower interest rate than credit cards, some cash advance offers may beat those interest rates—for a period of time.

How Long Does the Interest Rate Last?

Special rates for credit card cash advances are good only for a limited period of time, which can be anywhere from six months to a year. If a borrower feels confident she can pay off the transferred amount by the end of that teaser rate period, the credit card advance offer could be a good deal. But if she owes a lot of debt, it may be difficult to pay off the full amount before a higher interest rate kicks in on the card. Credit cards advances also have high fees and interest hikes that take effect if payments are late.

Personal Loan Can Offer Stable Payments

Personal loans can have fixed or adjustable rates.  Obviously, getting a fixed-rate loan makes more sense for someone who wants to know exactly what the payments will be each month. Borrowers who are employed and have good credit qualify for the best rates and terms. 

In some cases, a borrower may qualify for a personal loan of only a few thousand dollars. That may not help her out if she’s carrying a significant amount of debt. U.S. households that had a credit card had outstanding card debt of $10,679 at the end of 2008, according to the Nilson Report.

The other thing to keep in mind with credit card advances is that just because someone receives an offer in the mail doesn’t mean she qualifies for the best interest rate. Getting approved for the low teaser rate will depend upon her credit score.

Borrowing money isn’t always the best solution to get out of debt, but it can be a useful strategy. Find and compare quotes for personal loans to determine if getting one can help consolidate debt.

I’m not a pessimist but I know enough of them to know that being a pessimist can save you a lot of money. A pessimist is someone who sees a glass filled halfway with water as being half empty. In a beautiful blue sky, they see the clouds in the distance and ready their umbrella. They see insurance not as a protection against the unknown but as an investment in the future.

As much as society may frown on being such a negative Nancy (sorry in advance to all the Nancy’s out there), I think sometimes being pessimistic can save you money.

Feel Buyer’s Remorse Before Buying

Ever spend a lot of money on something only to feel a pang of regret afterwards? That’s buyer’s remorse. You get so excited about all the benefits of something that you don’t recognize some of the drawbacks until it’s too late. The reason this happens is because people see something and amplify the good and don’t consider any of the bads.

Approach is like a pessimist and feel buyer’s remorse before you buy it! Will it really solve all of your problems or make you feel better? If you think about it before you make the purchase, you might get an answer that stops you from buying.

Forces You To Be Realistic

Imagine buying a fancy new convertible. You think about how you could drive with the top down when the weather’s nice, you dream about the image it projects of you, you envision yourself meeting some cute guy or girl through your car. The problem with those three things is that they aren’t an accurate reflection of how you’ll really use it. You certainly could drive with the top down but how temperate is your climate? Could you do it on a drive to work? How often to you leisurely cruise around on weekends? What about when gas is $4 a gallon? As for the image and meeting new people, how often have you met someone or thought highly of someone solely based on the model of their car?

Add a drop of pessimism in there and maybe that mid-life crisis won’t be so expensive.

Become An Advocate

Approaching it like a pessimist forces you to be an advocate for your purchase and makes you argue against all the negatives. It forces you to confront and address all the bad things about something.

Let’s say you buy a video game system, will you really have the opportunity to play it? Let’s say you get home from work at 6pm, maybe you go to the gym for an hour, you eat dinner for an hour, you spend some time with a significant other or watch your favorite TV show(s), that leaves little time before bedtime for the game so it’s relegated to the weekend. On the weekends, how often will you actually get the play it instead of doing something else? Perhaps more in the winter, less in the summer when the weather’s nice. Does it truly make sense to drop hundreds of dollars on a system now? Maybe it’s better to wait until the weather is colder and save the money. You may not even want a game system then (or a better one will have come out).

Can you think of any ways pessimism can save you money that I missed? If you’re a card carrying member of Pessimists Society I most definitely would want to hear your opinion!

(Photo: bensonkua)

How Being A Pessimist Saves You Money

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