With many Americans still struggling financially, there is a push -again- this year to spend less on gifts, decorations, and all the trappings of the Holiday season. But it’s easy to hesitate, particularly if you’ve seen a friend or a relative do something that borders on tacky, irreverent, or just plain cheap. Fortunately, there are some easy ways to save on the holidays without compromising any of the things that make it special.

Use Traditional Decorations
This works especially well if you like to have a theme to your Christmas decorating. It doesn’t cost much to string some popcorn, hang candy canes on your tree, make a wreath out of branches you pick up at the park, and set up some strategically decorative pine cones.

If you’re particularly crafty, you can take it even further. Make some patchwork stockings, set up a gingerbread house or two,  and even make your own wrapping paper out of butcher paper and paint. Be creative, and you won’t have to worry about looking cheesy.  Here are some ideas from the CBS team in Los Angeles.

Contribute to a Group Gift
If you like buying nice gifts but can’t afford it this year, rally a group to get nice gifts for the people you know. This is a great way to continue offering high-quality gifts without breaking the bank.

Another option here is to purchase a gift card toward a nice present if you can’t buy the whole thing yourself. While your recipient may not get everything his or her heart desires, they’ll know that you care, that you see what they would really want or need, and want to be a part of purchasing it for them.

Keep it Simple
If you don’t have the money for a lot of nice decorations, just buy a few. It doesn’t take much to make a home Christmas-y, so a couple of strategic pieces can go a long way. And you can add to your decorations every year, until eventually you have the Christmas spread you’ve always wanted.

Shop Around for Sales or DIY
Many stores give discounts as you get closer to Christmas day.  So you don't have to spend all the money in early December when everything is at full cost.  Also, shopping around is the best way to lower your expenses.   For instance, when doing holiday greeting cards, look at cheaper options like Costco, instead of the fancier The Picture People.  Embark on a DIY picture session this year, instead of handing over the dough to the Santa at the mall.  Online is your friend this holiday season.

Bake Gifts
Flour, butter, sugar and eggs: your 4 basic ingredients to get some good cookies, sweet bread, or cakes going.  You don't have to play Martha Stewart, but a simple budnt cake wrapped nicely goes a long way to show your spirit this year.

How have you managed to keep a reasonable Holiday budget without feeling like Ebenezer Scrooge? or mean like the Grinch? Share your tips with fellow readers in the comments.

Image courtesy of Kevin Dooley.

REMINDER: Lending Club's 2010 holiday promotion is under way.  Get a gift card with up to $3,000 for holiday shopping.  Hurry, this promotion ends soon.

We’ve been hearing much about quantitative easing recently. What exactly is quantitative easing, and more importantly what does it mean for you as an investor?

The Federal Reserve is expected to announce a second round of quantitative easing (dubbed “QE2”) at its next meeting on November 3. Quantitative easing means that the Fed, which can no longer lower interest rates –which are already close to 0% - to stimulate growth, will inject more liquidity into the economy by buying government debt and mortgage-backed securities. The notable difference between QE2 and the previous round of quantitative easing implemented earlier this year is that the Fed might also buy corporate debt this time around.

The likely impact of another round of quantitative easing is higher bond prices and lower yields. Historically, the role of fixed income instruments such as corporate bonds and the Prime Consumer Notes offered by Lending Club was to offer a dampener to overall portfolio volatility, while also providing investors with sufficient current income to either reinvest or spend.  However, today’s world offers very little in terms of current income given historically low rates.  Your return from many fixed income instruments, such as bond mutual funds, is now heavily dependent upon future price appreciation/depreciation, rather than current income.

Yields on most fixed income instruments were already near all-time lows and the next wave of quantitative easing will likely result in even lower yields. So, where can fixed income investors go to get yield?

In the chart below you can see a traditional fixed income yield spread analysis that highlights the BA Merrill Lynch High Yield Master Index, Lending Club Notes, and U.S Treasuries (3-5 year durations). The Treasuries are represented here as the baseline.  What the data show is that spreads on high yield corporate bonds have fallen a great deal and are now back to pre-crisis levels, while the spreads on Lending Club’s notes remains very large.

Today, Lending Club has lowered rates on its personal loans in response to the overall economic environment, and in an effort to continue attracting prime and super-prime borrowers, who typically make decisions based on rates and monthly payments.  Even after taking into account today’s rate reduction, the yield spread on Lending Club’s Prime Consumer Notes remains near all-time highs. Our Notes also offer a relatively unique opportunity to earn current income in today’s market.

Jennifer Openshaw recently caused some people to stop and stare after she wrote this article for The Motley Fool: 3 Ways Out of Today's Financial Turbulence. In it, Openshaw talks about investing strategies to consider in a post stock market crash era: "dividend paying stocks, annuities and consumer notes".

Wait a second! Did she just say "consumer notes"?  What in the world is THAT?!?

Just another fancy way of referring to investing in peer-to-peer personal loans.   Lending Club offers an innovative investment alternative that recently reached $12M in interest paid to its investors.

Here is the full interview with Openshaw on The Motley Fool's Annuity News Show.  Enjoy!

@svPatrick

Last week, American Banker published a great article highlighting that some traditional banks are ramping up their promotion of personal loans.  It’s not surprising news, given that more and more consumers are waking up to the fact that credit card companies tend to lure people with introductory rates and gimmicky offers, go out of their way to stick them with hidden fees and get them hooked into the minimum payment trap.  In addition, the overall decline in home values have practically killed the availability of home equity lines of credit.

What’s notable about this story is that the writer, Sara Lepro, points out that personal loans are kind of “old-school” or “retro” investment vehicles.   It’s true, they pre-date credit cards and many other financial products.  But, what sometimes happens when we talk about personal loans here at Lending Club is that people act as if personal loans are some new, risky, “flash in the pan” concept.

Perhaps the way we issue personal loans is innovative, somewhat flashy, and far more efficient than the way traditional banks do it.   But, the concept of personal loans is – in many ways – time-tested, simpler and much safer for borrowers than many convoluted new credit programs available today.   Lending Club personal loans offer clear terms, no hidden fees, fixed interest rate and payment schedules, and arguably the best borrowing experience available on the web today.  This has translated into fast growth at Lending Club, where we issued more than $12M in personal loans last month alone, and more than $165M since inception.

From our perspective, the biggest difference between what we do and what the banks do is provide very clear underwriting criteria for personal loans – something the big banks have yet to do – and developed a lower-overhead, more efficient model to provide borrowers with lower rates and, investors with better returns.

In the article Lepro points out that “The annual percentage rates (on personal loans from banks) fall between 9% and 27.5%.”  By comparison, our rates at Lending Club fall between 7.93% and 24.15%... So yes, our more efficient model helps us pass the savings on to you, the borrower.  Tell a friend!

Other interesting data from the article:

• During the second quarter of this year, banks sent out 82 million solicitations for personal loans, estimates Mintel Comperemedia Inc., a market research provider, up 13.2% from the first quarter and 1.5% from the year-ago period.
• Wells Fargo wrote 23,294 secured and unsecured personal lines and loans (which includes loans for boats, planes and motorcycles), up from 20,505 in the first quarter. The San Francisco bank has more than 2 million of the loans on its books. It has offered personal loans for the last 10 years.
• The annual percentage rates fall between 9% and 27.5%, depending on the applicable state laws. Customers with a good relationship can get a rate as low as 8.5%, Vallat said.
• JPMorgan Chase & Co., for one, said it does not offer personal loans. Neither does Bank of America Corp., although spokeswoman Betty Riess said the Charlotte banking company is evaluating the idea.

With traditional banks ramping up their promotion of personal loans, and peer loans gaining rapid popularity in the US, it is clear that personal loans are back and experiencing a resurgence.   One positive outcome of the financial crisis is that we seem to be going back to more responsible borrowing and banking standards.

Referenced article: "Pitching Personal Loans to the Post-Crisis Consumer" by Sara Lepro on American Banker.

Lending Club: Better Rates. Together.

Many things have changed since the early 1980’s including the fact that interest rates have dramatically dropped.  It is simply amazing to contemplate that in 1981 U.S. citizens looking to purchase a home were actually facing the prospects of paying a mortgage interest rate of close to 20%!   Obviously, part of these high interest rates was offset by high inflation and things are quite different now.  Mortgage rates are the lowest they have been since the 1950’s and the U.S. Government is paying lower interest rates than at any other period in post-WW II history.

Consumer credit, however, hasn’t experienced the blessings of this dramatic interest rate drop, down only slightly since 1981.  Why?  Many speculate it’s because of the higher risk associated with consumer credit.  But that surface analysis doesn’t hold much water.  Yes, aggregate consumer credit charge-offs soared to record highs in the 2008 crisis, reaching over 10%.  Yet almost all forms of private credit suffered huge jumps in delinquencies and charge-offs.  (A little known fact is that mortgage delinquencies are currently higher than unsecured consumer credit!)

Even accounting for the large surge in charge-offs an investor still would have earned a competitive total return.  More importantly, the aggregate numbers do injustice to the fact that the top 20% of credit worthy customers had substantially lower charge-offs than the average but still paid excessively high relative interest rates because most credit cards issuers do not offer risk-based pricing.  This dichotomy points to the structural inefficiency of the consumer lending markets and represents why we believe Lending Club offers a compelling value proposition to both credit worthy borrower and investor.

For more on this topic, read on:

"Why Is Consumer Credit Still So Expensive?" by Daniel Indiviglio, on TheAtlantic.com

"Chart of the Day, Consumer Credit Edition" by Felix Salmon, on Reuters.com

"Off the Chart" on CBCNews