Beating Broke

Personal Finance from the Broke Perspective

Lending Club Update 4Q2012

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Now that the year has ended, and the new one has begun, it’s time for another Lending Club Update.  (Here’s the link to the 3Q2012 update if you care to read it.)

A couple of significant things happened in the final quarter of 2012.  My account maintained sustainability and I stopped contributing to the account (temporarily). I’ll go over each in turn, but the first is a milestone that I have been waiting for, while the second was something that just needed to happen because of my personal financial situation.

Lending Club Account Sustainability.

What defines sustainability?  For me, I’ve defined it as receiving in excess of $25 a month in principle and interest payments.  My account first reached that goal in June of 2012, and has maintained it since.  In August of 2012, it came close to dropping below that threshold, but managed to stay above.  It seems to have settled in at about $30 towards the end of the quarter, so hopefully as that money is reinvested, that number will continue to increase.

Beating Broke Lending Club Update

The entire quarter saw the interest payments that I received rise to a little over $9 a month.  I won’t likely get rich off of that, but it’s also not an insignificant amount on an account that has a total just under $800.  The Net Annualized Return (NAR) that’s being displayed on the account homepage is up .4% to 14.48%, a number I’m happy with.  There’s some argument over whether you should really use the NAR as a gauge of the account performance or not.  I won’t pretend to understand most of it. 🙂  What I do understand though is that having exact figures is less important to me for this experiment than it is to have a standard metric to measure my results by.  So long as the method of calculation remains the same, it should give me a general idea of how the account is doing.  (I’m open to learning more about how some of this is calculated.  Drop links in the comments!)

Contributions Stopped.

I stopped my contributions to the account in November.  If you’ve been reading along with the site, you’ll know that we ended up having some financial difficulties at the end of October.  As a result, much of the money that I was using to fund the account ended up getting transferred to my personal account to help dig ourselves out of that rut.  It isn’t any reflection on Lending Club, but a reflection on my finances and the need to help keep the ship afloat.  We’ve mostly righted the ship, now, so I’ll likely start putting some money back into this account sometime in the first or second quarter of 2013.

My Lending Club Portfolio

My portfolio remains strong.  I still haven’t had any defaults.  *knock on wood* While this experiment of sorts (it’s gone beyond that, I think) started in July of 2011, I’ve had my account at Lending Club since January of 2010.  That’s a pretty long stretch to go without a default of any sort.  You might recall that I sold a loan that had gone delinquent in the 2Q/3Q 2012 area.  I also had a second loan that had gone late, but it eventually was made current.  Currently, my portfolio has 42 loans in it.  All of them are current.  It also has 13 loans that have been paid in full.  Of those, perhaps about half have been paid off in advance.  That’s both good and bad.  I like that they’ve paid them off in advance because it seems to show that the borrowers are perhaps getting their finances together.  It’s bad, because I lose out on some income from interest when they pay them off early.  One of the risks of this income stream.

I’m still not able to directly invest in loans, and still have to invest through the FolioFN platform.  It’s still not ideal.  But, until my state (North Dakota) pulls their head out, and starts allowing it, that’s what I’m stuck with.  I’m not holding my breath.  I’m not going to complain too much, as I do seem to have found a pretty good method for selecting my Lending Club notes, and it seems to be working.

How are your investments starting off the new year?  How’s your Lending Club (or Prosper) account doing?

Are You Tracking Your Debt?

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I think we can all agree that most debt is bad.  Some of us might even agree that all debt is bad.  Nearly all of us will also agree that nearly all of us have debt.  It’s not a comfortable thing to have usually, and, since you’re reading this, I can only assume that you’re dedicated to paying it off like I am.

Like the debt conquistadors before us, we’ve learned that knowing your debt is key to besting your debt.  You can’t win a race without knowing where it starts and where it ends.  But, somehow, you’ve also got to be able to track yourself along the way.  You’ve got to track your debt, and track your progress in paying it off.

Many of my indebted blogging friends have gone so far as to track their debt on their blog.  Many of them have even gone so far as to create a nice progress bar that we can easily see how far they’ve made it.  I don’t do that.  Not because I’m embarrassed by the debt, or the progress we’ve made, but because I decided years ago that I wanted to keep it private.  You don’t need to know how much debt I have any more than I need to know how much you have.  We aren’t in a race against each other, and I surely don’t want anyone feeling badly about how much debt I have and trying to catch up. 😉

debt line graphNo matter how you go about it, keeping track of your progress as you pay off your debt is important.  If you’ve been reading Beating Broke for long, you’ve probably gathered that I’m a fan of budgets. I think they’re a useful tool to help people like me keep track of what they spend and where they spend it.  Budgets have helped me get control of my finances and move them in the right direction.  So, it’s only natural that I use my budgeting software (YNAB) to keep track of how much I owe and where.

There are tools all over the place to help you track your debt.  One of the sponsors of the Debt Movement, Ready for Zero, is a great tool to not only help you keep track of what you owe, but to also help you plan how you’ll pay it off.  Tools like Mint also do a really good job of giving you an online tool to track your debt (and other accounts).  I don’t use any of them.  Mostly because I haven’t come across one that actually connects to all of my accounts.  My local accounts at a credit union that is small enough to not be fully integrated (I guess) with the services that those sites and apps use to update accounts.

If you want to go really frugal, a simple spreadsheet can do the trick.  Just list out all of your accounts, how much you owe on them and then update it as you make payments.  Want to make it fancier?  Track them monthly, then make a colorful line graph of your progress.

It doesn’t matter what tool you use.  The point is that you track your debt.  Know where you started with your debt, and then track your progress as you make your payments and pay it down.  Even if you aren’t paying off accounts every month, it helps with motivation to keep going.

How do you track your debt?

img credit:blamevaraia on Flickr

Knowing Your Debt is Key to Paying Off Your Debt

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Any good anti-debt blogger (like me!) will be able to tell you all kinds of ways to pay off your debt.  There’s methods, and tips, and even a certain way to hold your nose. Ok, maybe I’m kidding about that tips bit.  Or is it the nose part?  I’m confused.  Seriously though.  There’s a debt snowball, made famous by Dave Ramsey, then a debt avalanche, then a debt blizzard, and so on.

But, the one key thing that you absolutely have to have if you want to pay off your debt is knowing your debt.  You’ve got to know the number, the type, and even the method of your debt.  If you want to overcome your debt, you’ve got to know it inside and out, upside and down.

How Much Debt

Just how much debt do you really have?  If you’ve do a budget regularly, (if not, start) take the time to write down how much you owe to everything you make a payment to.  Keep in in a spreadsheet and update it periodically.  Put a big bold total across the bottom.  Is it a high number?  Use that as motivation to pay it down.  Is it a low number?  Use that as motivation to finally get rid of it all!  Watch the total get smaller and smaller.  (If you’re an spreadsheet junkie, create a line graph for the total!)

What Kind of Debt

There’s a common argument over whether there is any such thing as good debt, or if it’s all bad debt.  I happen to think that argument is a little too black and white and that it really depends on your situation.  If you know how much debt you have (see above), now you can categorize it.  This really isn’t as hard or as complicated as it sounds.  We’re talking simple categorization here.  Is the debt on a credit card?  It’s credit card debt.  A mortgage?  Mortgage debt.  Car loan?  Car debt.  Put them all in a category, and total the categories.

How Did you Get Your Debt

This is going to sound silly, but now take a hard look at your debt and decide how you got it.  Some of it will be obvious.  You got that mortgage debt by buying a house.  The car loan by buying a car.  But, I also want you to go a bit further.  Did you buy that car (or the house) because you absolutely needed a car?  Or did you buy it because you had gotten bored with the old one?  Categorizing your credit cards this way will be a little harder.  It might be easiest to go through old statements and look at purchases.  What are those purchases?  If you’re buying groceries and other small priced consumables on your credit card, but not paying those charges off right away, that’s a good sign that you have a problem.  Determine why you’re spending the way you are, then find a way to fix it.

Now, Get Rid of Your Debt

someecards.com - Nothing gets me hotter than a man devoid of debilitating long-term debt

Now you know how much debt you have, what kind of debt it is, and how you got it. Let’s get rid of it.  If you’re comfortable sharing your totals (even anonymously), joining something like the debt movement can be a great help.  There’s tools out there that can help you, like Ready for Zero.  If you want to go it alone, here’s a simple method for starting.  Go back to the list of categorized debt.  Start with the category(-ies) that are un-secured (that means they have no asset like a car or house tied to them) and start paying those off with every spare penny you have. You can sort them largest interest rate to lowest interest rate, or smallest balance to largest, or however you want, really.  Just start paying them off.  Get them taken care of, then start on the smallest of the secured (tied to assests) debts.  Rinse, recycle, reuse, repeat.

If you feel like sharing, tell us in the comments below how much debt you have.  How much have you paid off?