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We are closing our 8th week on Facebook since the May 24th launch and continue to gather valuable user feedback and data. We are in the process of setting up our site to make most of the data available in an identifiable format, directly from the secure site.

In the meantime, we thought we would share a piece of data we haven’t shared yet: what you’ve done with the money! When we launched in spring time on Facebook, we were expecting a fair number of loans to cover moving expenses and other seasonal activities. There were a few of these (moves, weddings, vacations, etc.) but not as many as we expected. Below we share a breakdown of how the funds were used as reported by more than 100 borrowers:

(click graphic to enlarge)

Those numbers represent excellent news, as we have been promoting responsible borrowing on this blog and our Facebook forum for the past 7 weeks. This data shows a large majority of Lending Club loans went against refinancing existing higher-interest debt (50%), building up of assets (home improvement: 11%) and helping to develop new skills (education: 8%). Those three categories represent an aggregate two-thirds of all “consumer” loans made on Lending Club to date.

Another 5% was borrowed for business purposes (the loan was made to the individual business owner as a personal loan). It is likely that the percentage of borrowing for business purposes will increase when we expand beyond Facebook.

This is all good news so far. Keep on refinancing high-interest debt and invest in your future. Turn off your computer and have a wonderful weekend!

Renaud from Lending Club

Debt Management Plans (or DMP’s) don’t have the best reputation, and for good reason: many are downright scams.

If your primary concern is your short-term credit score (i.e., over the next few years), you should probably find another way of dealing with your debts. A legitimate debt management plan will hurt your credit score.

If you mainly want to avoid bankruptcy, then a DMP might be just the ticket for you. A legitimate DMP can lower your interest rates, consolidate your debts, and help you budget your spending.

So how do you decide what’s hot and what’s not when it comes to debt management plans? Let’s take a look:

What’s Not Hot (bad debt management organizations)
• Companies that take your information and sell it to advertisers or other 3rd parties. Check the organization’s privacy statement. If it doesn’t have one, run away!
• Outfits that charge large upfront fees to get you into “the program”
• Companies that fail one of these 9 questions to ask DMP companies (thank you, FTC)

What’s Hot (good debt management organizations)
• Organizations that give you advice on options besides a DMP. When I first enrolled in my debt management plan, my counselor recommended bankruptcy because she saw that as the best option for me. I was stubborn and didn’t listen to her sound advice (but am now filing for bankruptcy). Work with a firm that considers your unique situation and does what’s best for you.
• Companies that have accredited or certified counselors. Ask about your counselor’s training or accreditation.
• Organizations that don’t use a sales pitch. Good DMP’s are not sold. A legitimate non-profit organization will do what is in your best interest. If you feel like you’re getting “sold”…get out.

Bottom line: Be very wary about sending any money to a debt management company. I ended up working with Consumer Counseling Northwest. You can find other NFCC offices here.

Having your identity stolen can be a very scary experience. Aside from the feeling of helplessness that can arise from identity theft, your credit history can suffer significant damage in an incredibly short period of time. Consider taking the following steps to protect your identity.

Never throw out anything containing your personal information without shredding it.
The practice of "dumpster diving," or going through other people’s trash, is a favorite method of information gathering for identity thieves. In particular, be sure to shred pre-screened credit card offers and other documents containing or referring to your financial information.

Protect your incoming and outgoing snail mail.
In addition to promptly retrieving your mail when it arrives, be careful when sending mail as well. A raised flag on your mail box will alert the mail carrier that you have outgoing mail. It can also alert an identity thief to a potential gold mine of information in outgoing bills, etc. If you are typically away from home when the mail carrier arrives, consider using a post office box or other secure drop location.

Guard your Social Security number at all costs.
It's amazing how often your Social Security number is requested. You are commonly required to provide it when conducting business with financial institutions, the government, and matters which include insurance. In all other cases, you should exercise your right to withhold your Social Security number unless the requester can provide sound reasoning for requesting it. Just because there's a place on a form for it, you don’t necessarily have to disclose it.

Protect your personal information while you are online.
Be especially leery of providing personal information of any kind while you are online, unless the transaction justifies it. If you are making a purchase, make certain that the site uses encryption and be sure to read its privacy policy. In some instances, making a purchase also entitles a company to share your information with third parties. Such disclosures must be made in the privacy policy.

Check your credit report on a regular basis. One way to keep on top of potential identity theft is to stay on top of your credit data. A credit monitoring service is a great way to keep track of your entire credit profile. Such services were outlined in more detail in a recent post.

Lending Club takes your privacy very seriously. While we know that the above steps may not prevent all forms of identity theft, they are positive actions that you can take to make yourself a less desirable victim. Identity thieves are going to go after the easiest targets. By protecting your identity, thieves are likely to move on to someone else.

Among the many benefits of a P2P loan from Lending Club, there is one that hasn’t been discussed much to date. Borrowing money through Lending Club, rather than simply borrowing directly from a friend, will help you build your credit history.

Building your credit history will help improve your FICO score. This in turn helps to establish your credit-worthiness. This score ultimately determines the interest rate that you can expect to receive when applying for credit in the future. As we reported recently, the removal of authorized user accounts from consideration in determining FICO scores has had the side effect of limiting the credit history of many consumers.

If you are considering borrowing money from a friend, you may be much better off setting up the loan through Lending Club. Noted in a recent advice article on Kiplinger’s website, private loans (made directly by a family member or similar source), won’t improve your credit history. With Lending Club, your history of successful repayments grows with each on-time payment you make, and this will improve your credit score. Since Lending Club handles the payments, you can avoid the awkwardness of having your friend ask for your payments every month.

Another benefit of using Lending Club is that person-to-person loans generate interest payments to the very people who are helping you out. When you borrow at a bank, the interest you pay increases the bank’s profits. Since your loan is likely to receive funding from people who are connected to you, Lending Club really does enable friends to help friends.

Setting up the loan is quite simple. For a primer on how to get started, take a look at the “How it Works” page. You can gain something much more valuable than just the money you receive for the small overhead of setting up a loan through Lending Club. By repaying your loan on-time you can also strengthen your credit history. This can significantly improve your financial prospects for the future.

Creating a budget is a great way to become aware of your spending habits and identify where you might be overspending. Too often, we only check up on our spending when our bank account balance is lower than we would've thought. We all make lots of little purchases that we may forget about: Tuesday's lunch, a couple drinks with some friends, a new CD, a poster, a magazine. These purchases add up, and banks are depressingly good at keeping track of them even if we aren't.

The best way to track these expenses and control spending is to create a budget. There are plenty of websites with information on how to start a budget, complete with spreadsheets to help you categorize your spending. Examples include Pear Budget and Get Rich Slowly.

Once you have created a budget, anticipate your daily spending and then focus on sticking to your plan. For many people, the small everyday purchases add up and can be detrimental to a budget, such as food and impulse buys. There are two common ways to help you control day-to-day expenses: either use only cash or only credit/debit cards. Both methods have their advantages and the best choice depends strongly on your personal spending habits.

As was noted in a previous post on this blog, using an all-cash system for everyday spending is the easiest way to keep track of your spending and realize the true cost of things you purchase. If you have a history of convincing yourself that you need something, only to regret or forget about it later, then a few months on an all-cash basis could greatly benefit you.

With the cash-only approach, you can see how much money remains in your wallet. Plus, having to hand over the physical money helps solidify the final cost of the purchase. This is a very helpful strategy for people who are just starting to get a grip on their spending and may need to double-check the validity of their budgets. However, it is necessary to retain all of your receipts in order to track your progress.

The benefit of using only credit/debit cards is that you receive statements listing all of your expenses. There are many sites and services that help you keep track of and categorize purchases. The credit/debit card approach is best for people who already have a solid understanding of their spending habits and can look at monthly statements and remember every purchase over $20. Wesabe and Geezeo are two great sites offering tons of free tools to help you visualize your spending habits over time.

Ultimately, keeping track of day-to-day spending is a personal choice. There is a delicate balance to negotiate: if your money is either too easy to access or too hard to track, it’s much less realistic that you will be able to stick to your budget. Whether you use one of these two methods or apply your own strategy to track your spending, we here at Lending Club recommend any method that will help you to better understand where your money goes.