Balance transfer or peer-to-peer loan?

By Beverly Blair Harzog

The Great Recession, according to economists and other in-the-know experts, has been over for some time. But for many people, the debt they accumulated during the recession is still very much with them. If you're one of the people who's still carrying a sizable amount of debt, you've probably already thought about a balance transfer to a credit card with a lower APR.

This is often the first option considered and it's a good one, especially if you're considering transferring debt to a credit card with a 0 percent introductory APR. There are credit cards with introductory APRs on balance transfers lasting from six to 21 months, although it's usually closer to 12 months. After the intro period, you get the "go-to" rate. The go-to rate is the regular APR that you'll be paying on purchases -- and your balance -- once the intro period ends.

Whether the new go-to rate is a good deal for you depends on your credit score and the card you've chosen for your balance transfer. And remember there's also a balance transfer fee, which usually ranges from 3-5 percent. So if you're transferring a $5,000 balance onto a card with a 4 percent fee, you'll pay a $200 balance transfer fee. But if you're in a position to pay off your debt within the introductory period, the numbers could still work out for you.

Peer-to-peer lending offers another option

If you've looked at the numbers and a balance transfer doesn't seem to be a good match, here's another idea: Consolidate your credit card debt by getting a loan on a peer-to-peer (P2P) lending website. P2P lending websites help to match up lenders and borrowers online. These sites replace the "intermediary" job of the bank. And they do it quite well, too. In fact, debt consolidation loans are one of the most common types issued on P2P sites.

This is largely because there's the potential to get really good terms on these consolidation loans. The only catch is that, like with many types of loans, you'll need excellent credit to qualify for the best terms on P2P lending sites.

But if you think you might qualify, it's easy to apply online on sites such as Prosper and Lending Club. If your loan request is accepted, your loan might get funded in just a few days. And then you're making fixed, monthly payments and paying off your credit card debt at an interest rate that's most likely lower than what you'd get at a bank or on a credit card. It's pretty easy, too. The payments can be deducted from your bank account. Another thing I like about P2P loans on Lending Club? You don't get penalized for paying off your loan early.

If you don't qualify for a P2P loan now, don't despair. Just keep making your credit card payments diligently, and in time, your FICO score will go back up and your debt-to-income ratio will start going down. Once your credit history gets back on track, you'll have the option of opting for a P2P loan to pay off the rest of your debt.