Many people (incorrectly) believe that being in debt is bad, no matter how much you owe or who you owe it to. The truth is that we can’t access and use credit to buy homes or cars without going into debt. In many cases, the problem is that consumers have simply taken on too much debt. They’re sick of it and want to get out. We understand the yearning to be debt-free, but we also know how using debt (credit) such as personal loans to your advantage can help you get the things you want in life.

• No credit history – If you’re new to the credit market and have no credit history, you may be able to take out a small personal loan that will help you establish credit. Be sure you can afford the payments, and always pay your bills on time to establish great credit. Soon you’ll have access to more credit than you want or need. Be prudent, and never take on more debt than you can handle.
• Debt consolidation – Most people these days are looking for ways to get out of high interest credit card debt. Using a personal loan to consolidate credit cards is a great solution. You’ll get a low rate with fixed loan terms and monthly payments. Don’t close your credit card accounts, though, since having plenty of revolving credit available to you helps your credit score.
• Settling a balloon payment – Many types of loans these days come with balloon payments, lump sum payments that are due at the end of the loan term. If you haven’t saved up enough to pay the lump sum, taking out a personal loan is a much better way to deal with the situation than missing a payment. You’ll keep your payment history clean and establish additional credit at the same time.
• Rebuilding your credit – If you’ve had some negative payment history in the past, but are ready to meet your financial obligations now, taking out a personal loan with payments you can afford is a great way to show positive payment history. It may take some time to show your ability and willingness to pay, but after several months of on-time payments, your credit score should go up.

If you find yourself drowning in debt, taking on more debt is not usually a good idea. Unless you can use personal loans as a way of getting ahead, you shouldn’t borrow more money right now. Instead, make a plan reduce your debt load, and always review your credit report and score each year.

Things are different today. Banks and loan companies aren’t nearly as predatory as they were four or five hundred years ago. Still, there are some compelling reasons to try to find a person to borrow money from rather than from an institution, not the least of which is that many people just don’t qualify under the lender’s rules.

Enter the Internet. Today, there is a solid and growing marketplace for person-to-person lending online. The basic concept is simple, really. You need a personal loan, and rather than going to a bank or traditional lender you go to an online marketplace that connects personal lenders with those that need to borrow money.

There are a couple of different person-to-person lending models online. One model uses an auction of sorts to connect lenders with the lowest interest rates with a specific borrower. The lenders compete with one another for the borrowers business. This process often involves middlemen who package the loans and resell them.

Another model bypasses the auction type setup. It concentrates on situations where the borrower and lender already have a connection. Maybe they’re friends, or maybe they work together. This type of model serves to formalize the loan between two people. This helps to create an environment in which the money factor is taken out of the relationship.

The point of Internet personal loans is to reintroduce some of that social element that’s gone from today’s centralized banking situation. It allows individuals to control their borrowing or investing, and it does so in a way that avoids much of the infrastructure overhead costs associated with traditional lending.

This phenomenon is growing, and rapidly. In the year 2005, there were around $118 million of these types of loans. That number more than doubled to $269 million in 2006, and more than doubled again in 2007 to $647 million. Some experts project a total of $5.8 billion in personal loans between individuals in 2010.

Photo via floodllama

Well, there’s good news for the rest of us. You’re a dying breed.

There was a time, of course, when using a checkbook for the first time was a rite of passage. Today, it’s just antiquated. Many retailers and restaurants now even refuse to take checks. One of the largest grocery store chains in the nation, Whole Foods Market, is even running a trial program where they’re no longer accepting checks in California and Arizona. Many Whole Foods Market stores in the Northeast already have a no-check policy.

Another supermarket chain, Fresh & Easy, didn’t even run the idea past a test market. They have never accepted checks, from the day they opened.

Yeah, millions of folks still write checks every year. They either ignore, endure or are just oblivious to the sighs of the rest of us behind them in line. But their numbers are dwindling.

Some people, especially in the Generation X and younger demographics, write few checks if ever. If they do write a check, it’s not in a line at a store. It’s more likely to be for a utility or to a creditor. Some creditors and utilities offer online payment options, but for those that don’t the check is often the only option.

Many folks even find ways to work around that. Banks offer bill paying services that allow account owners to log into a bank’s website and set up a payment. The bank cuts the check for the customer, meaning they don’t have to do it themselves. It’s more instinctive for some folks to grab a mouse than it is to grab a checkbook and pen.

In other cases, the bank simply transfers the payment. For example, a customer might have a credit card or personal loan through their bank that has a payment that is automatically debited from their checking account.

Another contributing factor to this phenomenon is the advent of debit cards, of course. Why write a check when you can swipe some plastic? In many cases, retailers simply take the check and process it electronically anyways. They even hand you back the physical check, voided out.

Experts predict that within a decade, personal checks are likely to die out altogether. As the last of the baby boomer holdouts go to debit cards or online bill paying, paper checks are likely to quickly become extinct.

Photo via A.M. Kuchling