If you’re carrying a large amount of high-interest credit-card debt, you should consider a peer-to-peer loan for one simple reason: It can save you lots of money.

Peer-to-peer loans won’t fix the core issue that draws people into credit-card debt spirals, which boils down to spending more than they have or can repay, leading to growing debt balances and costly interest.

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The online lending industry has attracted unwelcome scrutiny this week, with a leading company undergoing a management shake-up and the Treasury Department saying it wants more oversight.

But for people trying to break a cycle of bad and growing debt, the combination of fixed and competitive interest rates make peer-to-peer loans a compelling option. The enthusiasm of investors looking to add consumer debt to their portfolios means you can find interest rates better than many credit-card firms will offer.

Credit-card debt can get expensive quickly

It’s easy to understand why banks love credit cards. They are fantastically profitable, despite relatively high default rates.

Ideally, credit cards are useful tools for consumers. They’re an easy way to pay for things without worrying about whether or not you have enough cash in your pocket. If you pay your balance as soon as you get the bill, you’ll pay no interest and, perhaps, accumulate rewards such as airline miles or cash.

But things can quickly get expensive if you don’t. For borrowers who do not pay the balance down to zero each month, the average variable annual interest rate for U.S. cards was 15.96% for the three months through April 27, according to Bankrate. At that rate, the interest on a $15,000 balance costs $2,394 a year.

If you have a high credit score, a solid record of on-time payments and a long history with your credit-card lender, your rate might be much lower than the average. But it will still be relatively high, because credit-card loans are unsecured. There’s no collateral to protect the lender.

You can steadily pay down the balance each month and “get to the promised land,” but you’ll still be paying the high rate of interest on whatever balance you’re carrying in the meantime.

Peer-to-peer lending, which we explored from an investor’s perspective in December, might be the best way to escape the credit-card debt trap.

The new loan, which can be used to pay off the card, will have a considerably lower rate with a fixed monthly principal and interest payment, typically with a term of three to five years.

How P2P loans can save you money

The interest rates for peer-to-peer loans are usually lower than the rates for credit cards because there are plenty of investors eager to fund the peer-to-peer loans as part of an income strategy. Your payments, simply put, go into their pockets.

Let’s return to our example of a $15,000 balance with an annual interest rate of 15.96%. (Credit-card balances vary, of course, but it’s not uncommon for them to near or pass $10,000.) Many people pay much higher rates — they can reach 30% — but the idea in this example is not to exaggerate the potential savings.

Lending Club says its average borrower had a credit score of 699 as of Dec. 31, which is only slightly higher than the national average of 695. The company also says that based on a survey of nearly 13,000 borrowers, the average Lending Club loan had a fixed rate 35% lower than the borrowers’ average credit card rate.

Based on those numbers, a 35% reduction in the rate would bring you down by about 5.59% to a fixed rate of 10.37%. You would have a one-time origination fee of 1% to 5%, depending on how the peer-to-peer lending company grades your loan; in this example, the loan would fit into the B or C range, for a fee of 2% or 3%. To keep things simple, we’ll use a hypothetical origination fee of 3%, or $450.

Using rounded numbers derived from calculators provided by Bankrate, we arrive at a fixed loan payment of $487 for 36 months. Your total cost, including $2,526 in interest, the $450 origination fee and the $15,000 you owed, would be $18,013.

If you started with the same balance and made a monthly payment of $487 on your credit card, it would take you 40 months to pay the card down to zero. Your total interest would be $4,427, for a total cost of $19,427.

So you would save $1,414, with the Lending Club loan — even more, if your origination fee is lower than the example. Every borrower is different, and total debt, income and loan payment history are considered when your loan terms are calculated.

The peer-to-peer loan would not only save you money, it would give you some peace of mind, since you would know exactly how much you would pay each month and exactly when the loan would be paid off. That’s much harder to do with an open credit card, which you might still be using and which could change its interest rate.

How one consumer used a P2P loan to save

The two major peer-to-peer consumer lenders are Lending Club, a unit of LendingClub Corp. LC, -0.49% and Prosper.

LendingClub announced a major problem with its loan sales on Monday. The company’s founder, CEO and Chairman Renaud Laplanche resigned and three other executives left the company after a company review found that loan data for a $22 million in loans had been altered to misrepresent their credit quality. (Prosper, meanwhile, announced a restructuring Tuesday, though it does not affect their consumer lending business.)

Read: Troubled peer-to-peer lenders could still be a good choice for low-risk borrowers

Other major peer-to-peer lenders include Funding Circle on OnDeck, which focus on business loans.

We asked Nik Doner, an actor and video producer who lives in Seattle and is a customer of Prosper, about his experience with a peer-to-peer loan facilitated by that company.

Nik Doner

Nik Doner, a customer of Prosper.

MarketWatch: What did you do with Prosper?

Nik Doner: Basically, I had a little bit of debt accrued, not from any big purchases but from normal everyday expenses. My car is over 20 years old and I have a little dog. The three credit cards I had were getting a little out of control, interest rate-wise.

I heard a podcast for Prosper, got my quotes for what my interest rate would be to consolidate my credit- card-debt, spoke with my financial adviser and got the thumps up. So now I make my monthly payment to pay off my loan and its super convenient for me.

MarketWatch: How much was the debt? What were the rates on your credit cards?

Doner: About $5,000. The cards each had rates of about 28%, so pretty high.

MarketWatch: Were you making your payments on time?

Doner: There was no risk of me defaulting or making a late payment. My credit score was in the 690s.

MarketWatch: Did you ask the card lenders to lower their interest rates?

Doner: I think I had in the past, but I am just kind of tired of dealing with them, to be honest. Prosper was easy to deal with, so I decided to go that route.

MarketWatch: What is the interest rate and term for your loan with Prosper?

Doner: The loan is for 36 months and the rate is 9.6%. The fee was 1%, or $50.

Doner’s loan was for exactly $5,000. His monthly loan payment (again, rounded) is $140. His total interest paid of the life of the loan will be $774.35. Including the loan balance, the interest and the $50 origination fee, his total cost will be $5,824.35.

If Doner had decided to pay down his $5,000 in credit-card debt with monthly payments of $140, it would have taken six years and six months to pay-off the balances and at his card interest rate of 28%, the interest would have totaled $5,876, for a total cost of $10,876.

You can get out of debt — but you still need to watch your spending

“Credit cards were intended to be transaction devices and are now ways to borrow money,” said Ron Suber, Prosper’s president, in an April interview. “We help people get the rate they deserve with no prepayment penalty, they know they are out of debt in that three year period and they avoid the debt spiral of the CC industry.”

Prosper has a smartphone app called Prosper Daily, which is available for Android phones and the iPhone and can help you track all your loan and deposit accounts, and even help you track your credit-card spending, to make your entire spending and cash management situation easier to understand.

The app can alert you to duplicate credit-card charges, which are more common than many people realize. It also provides a free credit score, categorizes your spending and helps with budgeting.

“We’re helping them see visually their financial situation and we’re showing them, ‘You have cash and your wife has a charge on her credit card. Maybe you should take the cash and pay-off the 19% card,’” said Suber. “It can show you your credit score and even say, ‘Hey, you went to the gas station and they charged you twice. Hit the button and we can help you.’”

LendingClub declined to answer questions for this story, though a spokeswoman did provide information that helped create the hypothetical scenario described earlier.

While a P2P loan can be useful for getting out of debt at a lower cost than paying off a credit card, it won’t fix problems with your spending habits. It might even lead you further into debt, since you will no longer be carrying balances on your cards. Can you resist the temptation?

Even with the best intentions, meanwhile it can be easy to rack up credit-card debt because of unplanned costs — especially if, for example, you just bought a house and face unanticipated repairs.

After events cause credit-card debt to build up, a peer-to-peer loan can be a good way to pay off that debt at a lower rate. The next challenge, then, is to carefully manage your finances to avoid plunging back into the credit-card debt whirlpool.

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