SimplyCredit: startup offers new debt-consolidation option

Those wishing to consolidate card debt and minimize interest payments now have a new option to consider. It’s called SimplyCredit, and it combines the worlds of debt-consolidation, auto-payments and even credit building.simplycredit logo

There’s nothing quite like SimplyCredit in the consumer lending industry right now. So we spoke with one of the company’s founders about how it works – and with a credit counselor about how to tell whether it’ll work for you.

How SimplyCredit works

SimplyCredit offers a full-service option but also allows you to use some of its services a la carte and in tandem.

If you go with SimplyCredit’s flagship service, here’s the deal:

  • You’ll apply through SimplyCredit for a credit line, the amount and APR of which will be based on your credit history. These lines of credit are provided by SimplyCredit’s lending partners, with SimplyCredit acting as liaison.
  • If you qualify, SimplyCredit will present you with a single offer via one of its partners. If you accept the terms, you’ll then provide SimplyCredit with the information it needs to transfer your card balances to the new credit line. All data collected about your accounts will be stored securely and not be used for third-party marketing purposes, says SimplyCredit founder and CEO Karthik Sethuraman.
  • You’ll make one monthly payment – with interest – to your SimplyCredit line. SimplyCredit uses a simple-interest model. That means, unlike with credit cards, you won’t pay compound interest. Minimum payments will be that month’s interest charges plus 2 to 3 percent of the principle (at simple interest).

    If you were wondering how SimplyCredit makes money, this is how. While most of the interest will be passed back to the lending partner, says Sethuraman, SimplyCredit will keep a portion.

    What if you have a 0 percent balance transfer deal on one of your cards? Will SimplyCredit roll that into its credit line and charge you interest on it? No, Sethuraman says. Instead, it will make the minimum payment on that card on your behalf (more on that in a moment) and then move any remaining balance over to the SimplyCredit line before the card’s promotional period ends. If you have a card with an interest rate lower than what SimplyCredit gives you, that card also won’t be rolled into your SimplyCredit line.

    “Our payment system is designed to do the right thing for the consumer,” Sethuraman says. “… What is the right thing I would do myself? That’s what I want SimplyCredit to do.”

  • Continue using your credit cards if you wish. You can enroll your cards for auto-payment, meaning SimplyCredit pays off the balances automatically. The information you provide to enroll your cards will be roughly what you’d give to, Sethuraman says. He estimates that most major credit cards will be compatible with its system.

    Here’s where you need to make a decision: You can have your future card balances rolled into your SimplyCredit line and paid off that way. Keep in mind, though, that will involve paying (simple) interest on those balances. Or, you can have SimplyCredit pay off future card balances from your checking account. You can choose between making full payments to your cards, or just the minimum. But, as Sethuraman points out, if you’re trying to minimize interest, you’ll want to set payments to “full.”

    However you do it, payments will be made to your cards about a week before the due date, circumventing interest charges from the card issuer if you select the “full payment” option, Sethuraman says.

    “Essentially, you’re getting your grace period back,” he says.

  • If you don’t have enough between checking and your credit line to cover all your card balances and your monthly payment to SimplyCredit, SimplyCredit will pay your minimum payments (in order of most interest to least interest).

    If you miss your monthly payment to SimplyCredit and become 30 days late, your delinquency will be reported to the credit bureaus (in accordance with the reporting policies of whichever lending partner provides your loan).

    As you near your credit limit, however, expect SimplyCredit to be in touch, Sethuraman says, asking you to devise a plan. SimplyCredit doesn’t charge late fees or penalty interest (and will even eat the late fee if its lending partner charges one).

    “We don’t want to be like another credit card company,” Sethuraman says. “The only way we can make that happen is to have more of a one-one-one discussion.”

SimplyCredit is rolling out its full-service product gradually. If you’re interested, you can reserve a spot in line via its website.

If you don’t want to use SimplyCredit’s credit line, you can sign up for just the auto-payment service, which is free. Within the next couple weeks, the company will be launching a new option that lets you calibrate a payment plan that minimizes interest, or that boosts your credit scores over time.

“We’ve been getting a lot of people saying, ‘Can you just tell me what I should do, even if I don’t want to go through the whole [credit limit] process?'” Sethuraman says.

A more consumer-friendly option?

Sethuraman used to work for FICO, helping major credit card providers manage risk for their lending portfolios. He noticed that, even when issuers reduced their risk, they wouldn’t make their terms more transparent and lenient. His frustration with that fueled the launch of SimplyCredit, he says, – and its business model that includes no late fees, compound interest or penalty interest rates.

In return for the lion’s share of the interest, SimplyCredit urges its lending partners to offer terms in line with its philosophy.

“We want to establish sane credit terms,” he says.

While other options abound for consumers who want to manage debt, the hybrid nature of SimplyCredit (debt consolidation + interest reduction + automatic payments), Sethuraman says, makes the company a more “holistic” option than other debt-reduction tools. Balance transfer cards, he says, land all but the most diligent consumers in a trap of multiple APRs. Debt consolidation loans, meanwhile, don’t offer enough support after the card balances go away.

“The truth is that the balances you wipe away through the use of a personal loan come back on the credit card after six months, a year,” Sethuraman says. “Consumers get these loans, pay off their cards, and six months later, they have to use their card again and the balances come back.”

Things to consider

As with any credit product, you’ll want to make sure SimplyCredit is a good fit for your situation. We asked Bruce McClary, of the National Foundation for Credit Counseling what you should consider before signing up:

  • The interest rate: SimplyCredit’s interest rate may not be the lowest you’d qualify for, McClary says.

    So shop around. First, pull your credit reports and check your FICO scores.

    “Never go to lenders and apply for anything without knowing your score and the details of your credit report,” McClary says

    Then approach lenders directly. “You can ask a lot of questions without initiating the official application process,” McClary says, including which APRs consumers with your credit standing qualify for.

    Finally, narrow your options to a couple lenders and apply. Multiple applications will mean short-term credit damage from inquiries, McClary says, but ensuring you get the lowest APR possible can save you a lot of money, especially if your balances are large.

  • The lender: If you apply with SimplyCredit, research the lending partner offering the loan, McClary suggests. And do the same for any other lender you apply with. “Find out about their reputation,” he says.
  • Your motives: If you’re looking for a service to manage multiple card payments for you and simplify your debt, SimplyCredit may be a good fit, McClary says. But if your debt problems are severe and your finances completely unmanageable, it’s probably not enough, he says.

    “While this service may be helpful for certain individuals, it’s not necessarily for someone in dire straits,” says McClary.

    If that’s you, McClary recommends meeting with a credit counselor to see if a debt management plan or financial coaching is advised.

  • Other options: Before looking into debt consolidation of any kind, look at your budget.

    “Maybe by re-engineering your budget, you can power-pay your debt and get it off the books faster,” McClary says.

  • The risks of outsourcing: While automatic payments and consolidation may prevent you from forgetting to make payments to your many cards, that convenience can cause you to lose touch with your finances, McClary says. So don’t let a streamlined service keep you from regularly reviewing your bank statements and spending.

    “The more you outsource, the more you’re taking your hands off the wheel,” McClary says. “Every individual should have complete knowledge of and hands-on interaction with every financial transaction they make.”

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