I received an email regarding my earlier

introduction post about Prosper.com and whether it would be a good place to consolidate her credit card debt:



...I have a little under $10,000 in credit card debt where I'm paying about 27% interest on three different cards. The payments are killing me and I've been trying to consolidate them at a lower rate, but because my credit rating isn't good, I can't get a lower rate card to transfer the balances to.

I saw your post about Prosper.com and I think this would be a good way for me to pay off the high interest credit cards and be able to pay a lower rate. That is what Prosper is for, right? To get loans like this...

While you need to make your own financial decisions based on your circumstances and I can't tell you what to do, there are some issues that you need to seriously consider.

While Prosper may look like an easy way to consolidate high interest loans, it's important to run the numbers to see if it will truly help out with your current problem. If it is the current monthly payments that are "killing" you, Prosper may be the last thing you want to do. Why? Because prosper offers a three year loan. Depending on the percentage your credit cards are currently requiring for the minimum payment, getting a loan from Prosper may actually increase your monthly payment even if you get a better interest rate.

Let's take the following example. If your current credit card requires a 3% minimum payment per month and the credit card balance is $9,500, your minimum monthly payment would be approximately $285. Now if you get the same loan from Prosper at 14% (highly unlikely if you have high risk debt - you would probably have to pay more), your monthly payment would be approximately $325 or $40 per month more than you currently are paying.

Before you look purely at the interest rate, it's important to make sure that the monthly payments can be met and aren't going to increase your monthly costs.