Investing in Consumer Debt for Retirement

Saving for retirement is key if you want to ensure a certain standard of living once you leave the working world for good. ?That means saving and investing your money wisely while you still have time to make a difference.

While there are many different places to invest retirement savings, many people turn to the stock market for the best return on their money. That?s not the only way to get a good return. In fact, diversifying your retirement investment is the best way to maximize your profit and lower the risk. Investing in consumer debt is one way to achieve this.

?

How To Invest in Consumer Debt

One way to invest in consumer debt is to make loans to individuals, perhaps family and friends, and then collect interest on their payments. However, there are downsides to this method. Not only do you risk not getting your money back, but you also risk ruining a personal relationship.

You can invest in consumer debt and keep your friends by investing via a peer-to-peer or P2P network. There are currently two big players in this arena: Prosper.com and LendingClub.com. P2P networks act as middlemen between individuals looking for loans and individuals who have the money to fund them. Borrowers often go to a P2P network to avoid big banks. The network vets the borrowers through a qualification process and collects a portion of the interest paid on loans.

?

How It Works

Both the major P2P networks operate similarly. You start by choosing an amount to invest, or loan. You can either loan a lump sum to one person, for example, if wanted to lend to someone you know, but wanted to legitimize the transaction. Or you can spread your investment among several different loans. The network can also automatically invest for you if you choose the amount you want to invest in each loan and the credit risk you?re willing to accept.

You make money on the loan by receiving interest payments. The amount of interest you receive is based on the borrower?s credit risk as determined by the P2P network. Each borrower is given a letter rating that indicates their default risk. Lower letters, e.g. A, typically indicates a lower risk while bigger letters, like F, show a higher risk.

The riskier the borrower, the higher the interest rate and the more interest you receive. However, those higher interest rate loans also have a higher risk of default. A borrower defaulting on their loan is similar to a stock that plummets and you lose what you had invested in that loan. You can lessen the impact of default and maximize your return by spreading your investment among high and low risk loans. Annual returns of 10% are widely reported.

Investing in debt via peer-to-peer lending is a relatively new concept for many people. As with all other investments, you should thoroughly research the investment before you put money in. And, don?t put all your money in the investment upfront. Start with a small amount so you can see how it works and figure out the loan amount and rating that works best for you. Then, once you?re comfortable, you can increase your investment amount to increase you earnings!

?

This is a guest post written by Eliza Collins, a professional writer specialized in the personal finance space. Eliza?s experience includes working for financial institutions, private debt relief companies as well as years of balancing the family budget. You can read more of her articles at the debt settlement blog.

Related posts:

1. Getting Out From Student Loan Debt
2. Are You Prepared For Retirement?
3. The Risks of Private Student Loans
4. Stay Away From Debt Relief Companies
5. Top Student Loan Scams

Source: http://thecollegeinvestor.com/2425/investing-consumer-debt-retirement/

annie hall jon lester mitchel musso bad lip reading gilad shalit gilad shalit john edward psychic