Debt consolidation has consistently been a primary reason for borrowers to turn to peer-to-peer lending since the platforms first emerged a few years back. Recent data shows that this trend has only intensified as the awareness of p2p lending has increased, and people work to rid themselves of high-interest debt. In July, 66% of all peer-to-peer loans issued by Prosper and Lending Club combined were used for debt consolidation – a new high for the industry, and a 21% increase over the same month prior year. For Lending Club, 75% of their loans were for debt consolidation.

A scan of recent loan profiles shows a growing pool of borrowers trying to crawl themselves out of debt, and, in many cases, using their new lower-rate loans to change their lives. In loan profile descriptions on Prosper and Lending Club, some borrowers characterize themselves as recent college grads that fell into debt when they were unable to find a job. Others explain that they took on additional debt when they had a new baby. Other loan-seekers mention simply a new determination, after several years, to finally rid themselves of high-interest credit card debt.

The common theme among most borrowers is that while their debt burden may be significant, they have recently reached a position of cash flow consistency, perhaps through landing a job, or reducing expenses.. As a result, these borrowers have been able to qualify for a loan on Prosper and Lending Club, which only accept borrowers with solid credit scores (over 640/660).
In June and July, the average debt-consolidating borrower with Lending Club held eleven open lines of credit, including credit cards, mortgages, auto loans, and other loans. Numerous borrowers took out p2p loans to pay off high interest rate credit cards. One Prosper borrower says he ran up a slew of credit card debt WITH 20% + APRs when he got divorced. His new consolidated loan pays a 12.43% APR. Not a bad trade.

Then there are the extreme cases. One borrower on Prosper says he realized the need to get rid of his high interest payday loans when he sold his house in 2011 for a loss. While he currently holds down a “very secure and high-paying job with an Aerospace company,” his outstanding loans included APRs of 160% APR and 230%! His new consolidated loan with Prosper is now 35.8%.

In looking at these debt consolidators, one comes away with a sense of progress, of people aiming to improve their lot. One Lending Club borrower put it best in a one-line profile description: “Really getting my act together.”