Crowd Fund Your Credit Card Debt

NEW YORK ( TheStreet -- Here's the situation. You've unintentionally run up some credit card debt and the interest is so high that it seems like you can't get ahead. Your big bank has no desire to help you out, and you wouldn't dream of asking a friend or family member to help you out of this jam. But what if a crowd of random strangers steps up?

That's exactly the scenario at sites like Prosper.com and LendingClub.com. Borrowers apply for loans and the websites screen the applicants to make sure the lenders will pay the money back. Only 10% get approved, so it's not a layup if you have poor credit, or you can't prove your income. Investors buy notes made up of these loans, then sit back and collect the interest.

This option is welcome news for some consumers who have run out of ideas. The latest Household Debt and Credit report from the Federal Reserve Bank determined that borrowing on credit cards increased $8 billion in the most recent quarter to $668 billion. Fueling the thirst for charging more, available credit limits were also expanded to $2.13 trillion, the highest level since 2009. While the number of delinquencies has gone down, many consumers are worried about rates rising in the coming year as the Federal Reserve has hinted it would begin backing away from its quantitative easing environment. Fear of higher rates makes the desire to consolidate current credit debt to a lower rate very appealing.

Lending Club gives loans that start at a minimum of $1,000 and can go as high as $35,000. The terms are three years for loans under $16,000 and above that it can be either three or five years. It also isn't open in every state. Lending Club does not currently offer Member Loans in Idaho, Indiana, Iowa, Maine, Mississippi, Nebraska and North Dakota. If the borrower has been making payments on time, they could go back for another loan and bring the amount up to $50,000.

LendingClub started in 2007 and has lent $2.2 billion to borrowers and has paid $198 million in interest to investors. The average rate for borrowers is 6.78%, although most of the active listings on Seederalla.com seemed to average between 7-10%. CreditCards.com notes that the average rate for credit card borrowers is 14.95%, so for most consumers, this is a much cheaper rate. On the investor side, Lending Club notes return interest in the range of 5.57%-9.16%. WebBank is the machine behind the wall and it is FDIC-insured.

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