Beating Broke

Lending Club Returns Update 4Q13

January 6, 2014 By Shane Ede 4 Comments

Another quarter has come and gone, so it’s time for an update on the Lending Club returns I’ve been getting on my account. At the end of the third quarter, my account was sitting at a return rate of 14.69%. It’s actually improved a bit since then, but Lending Club has also added the ability to adjust the displayed NAR, which does some funny stuff (see below) and reduces the rate a bit. I think that’s a good thing (again, see below) and that’s the rate I’ll likely be using for future updates.

Lending Club Adjusted NAR

A few months back, Lending Club introduced what they’re calling an adjusted NAR. Basically, it uses the historical charge off rates of loans at the different stages of delinquency. Obviously, the current loans have a historical rate of charge off of 0%. Once they go into the Grace Period, about 23%, 16-30 days late, about 49%, 31-120 days late, about 72%, and in full default, about 86%.

As an example, my portfolio currently has two notes that are in the 31-120 days late category. So, when Lending Club is adjusting my NAR, they use the 72% figure and assume that 72% of the principle will be lost. Using that number, they then calculate the new, adjusted NAR. With the two notes late, my adjusted NAR is currently showing as 13.16%. Still a very healthy number, and likely a more realistic number. I like the new adjustment, as it should give investors a more realistic number to look at.

Lending Club Defaults and Late Notes

As I mentioned above, my portfolio currently has two notes that are 31-120 days delinquent. And, if you go by the historical numbers, those two notes have about a 72% chance of eventually going into collections. I’ve been lucky enough to only have had one note actually go that far to date, and the collection agency was able to get a bit of that money back for me. It wasn’t the entire amount owed, but a significant portion of the principle, which I was happy for. I could try and sell off the two delinquent notes, but at this point, I wouldn’t get much out of them, so I think I’ll just ride them out and see what happens. The total principle involved is only about $35, so it would mean about a month and a half of lost interest payments. That’s a risk I’m willing to take.

The Future of My Portfolio

With the rates I’m getting, I don’t foresee stopping my investing through Lending Club. I may even start putting some more money into the account sometime in the future. At the moment, I’m content to just leave it and reinvest the payments each month. I’ve seen a few other investors that have either significantly changed how they’re using Lending Club, or have begun backing out of it altogether. I think it’s something that you need to be able to change how you do it, but I also believe that backing out altogether is a mistake at this point. The technology is still relatively new, and many of the changes that we’re seeing Lending Club make have been for the better.

I’ve created a page that consolidates all of the posts I’ve done on Lending Club, as well as the quarterly updates since I began doing them. If you’re interested in starting to invest in Lending Club, you can read more on my Lending Club page, or you can sign up for an account and give it a go.

How Your Confidence Affects Your Finances, Part One

December 30, 2013 By MelissaB 14 Comments

The other night, my husband and I watched Maxed Out, a documentary about the credit card industry and the effects using credit has on individuals’ lives.

While the movie itself had some dry sections, the heart of the movie, to me at least, was how people responded to heavy debt loads.

Of course, heavy debt loads is a relative term.

The Worst Case Scenario

One college student who was $12,000 in debt chose to take her own life rather than face the endless collection calls about a debt that she obviously felt was insurmountable.

Another woman, Yvonne Pavey, was in debt, but then, with late fees and penalties, the amount of debt she faced spiraled out of control. Her solution was to simply drive her car into a nearby lake. Her body was found at the end of the Maxed Out documentary.

The Endless Anxiety and Despair

Another woman in the documentary began to struggle financially after her husband died and she could no longer keep up with the house payments. Rather than sell the house, she chose to finance her monthly $4,000 house payments on her credit card. When she was interviewed for the documentary, she was weeks to days away from foreclosure. The pain and despair she felt was palpable. While she hadn’t taken the drastic measure of taking her own life as others had, it was clear that she thought her life was over and that she had failed.

She had mentally checked out of the game of life and felt that she had failed and there was no escape. This feeling of despair among those who have debts is common.

The Effects on Your Health

In addition, carrying a heavy debt load can take a physical toll. “Experts say there’s no question that being in debt can be stressful. And a wide body of research has tied stress to health problems including high blood pressure, cardiovascular disease and stomach disorders such as colitis. ‘As with any serious stress’ debt does have an ‘impact on one’s physical health,’ said Elizabeth Carll, a New York-based stress and trauma psychologist. Financial worries may cause a person to be ‘run-down, have more colds, migraines and headaches, [and] their current medical conditions may get worse” (The Washington Post).

As someone who is on a journey to pay off nearly $58,000 in credit card and student loan debts, I can attest both to the sense of hopelessness and the health risks. For nearly 18 months in our debt payoff journey, the debt was literally all I could think about, and it affected my health. I didn’t sleep as well as I should, I was quick to anger because of the stress from the debt, and my health failed me. In fact, it’s taken me 15 months to restore my health and almost begin to feel like myself again.

We have been paying down our debt for two years now, and we have just reached the halfway point. Our debt now is at $29,000 in student loans only, and we finally feel like we can breathe. I’m not out of debt yet, but I’m far enough through the process that I can see how much that debt weighed on me like a ton weight around my neck.

Through this journey, I’ve learned that your mindset can make or break you when it comes to both your feelings about your debt and your debt payment.

Stay tuned for part two. . .

This New Year, Take the Time to Look Back at What You’ve Accomplished

December 23, 2013 By MelissaB 12 Comments

The year is wrapping up, and we’re all hustling to finish our holiday shopping and prepare for the perfect Christmas season. Then, just a few days later, we’ll be intent on improving ourselves and making ambitious goals for the next year.

I love taking the time to plan what I want to accomplish in the new year. I spend a few weeks planning and writing down each goal. I share my goals on my blog, and every month I update them with my progress, which helps keep me accountable. With this process, I’ve been able to reach at least 75% of my goals every year.

If you, too, are a goal setter, you may focus only on the future, but that can be a mistake.

Instead, before you start looking forward, take the time to look back at 2013 and all you have accomplished.

For instance, my husband and I are in the midst of paying down a mountain of debt (the balance was $57,966.01 spread across credit cards and student loans when we started paying it down at the end of 2011). Every month money is tight, and honestly, sometimes I wonder if we’ll every be in a comfortable position financially.

My husband keeps reassuring me that we are in a better position financially this year, but I always assume that is what he says because he’s a free spirit and I’m the financial worry wart. However, I took the time to look back, and I realized that he’s right. We are in a much better place than a year ago.

At the beginning of January, 2013, my student loan balance was $4,218.94. This month, I just paid it off. That’s only one example. In each area of our lives that I looked at financially speaking, we’re in a better place. While I don’t necessarily feel the financial difference, the numbers on the paper don’t lie; we’ve made progress this year.

When you’re in the midst of a financial struggle, whether it be paying down debt, trying to build your savings, or trying to increase your income, feeling like you’re not making any progress is normal. Getting ahead occurs so slowly that you often feel like your stagnating when you’re not. Inch by inch, you’re making progress, but when you’re deep in the forest, it’s hard to see anything besides your immediate location.

You need to consciously look at where you were 12 months ago so you can appreciate where you are now.

But most of us never take the time to do so. That’s too bad because by reflecting on the progress you’ve made, you can build your confidence and make accomplishing your goals in the future even more likely.

Plus, by looking back at what you’ve accomplished and the progress you’ve made, you can better set your goals for the next year.

A car has a rear view mirror because you have to see where you’ve been and what’s behind you to help you continue going forward. The same is true with your financial life.

Have you taken the time to look at the financial progress you make every year?