Debt Here Is The Same As Debt There
Dan wants his parents to go to Prosper and borrow money as a way to pay off their credit card debt. Dave doesn't like the idea.
QUESTION: Dan’s parents have $20,000 in credit card debt. He paid off half their debt a couple of years ago. Dan’s brother thinks they should refinance the house to take care of the rest. Dan wants them to go to get a Prosper loan, where people lend money to other people, to handle this. What does Dave say?
ANSWER: I disagree with you and your brother. It doesn’t work to borrow your way out of debt. When you moved your debt from student loans to Prosper and paid it off, what you did was focus on it. The interest rate didn’t save you. What made you get out of debt was by walking up to your debt and smacking it in the face. The same thing is what will get your parents out of debt.
If you make $5,000 a month and live on $4,000, they put that extra $1,000 per month toward their debt, and they are debt free in 20 months. If they can’t pay off their credit card debt, how will they pay off a Prosper loan?
The credit card interest rate is not the problem over the short term. It would be nice if the interest rate on the cards was lower, so surf the debt to other cards. I’m not a fan of Prosper, and I’m really not a fan of trying to borrow your way out of debt. Have them trim their budget to nothing, have them on beans and rice, and they can pay this debt off.