Lots of food for thought this week:

• Finding Passive/Alternative Income Streams - Million Dollar Journey shares some thoughts on expanding your income beyond just your job.
• The Dividend Guy Investment Process - The Dividend Guy has been running a multi-post series explaining his strategy to dividend investing. Day 1 is here.
• Pre-Screening Dividend Stocks - Part I - Dividends4Life has also been running a multi-part series of posts, this one focused on how he screens stocks.
• Don’t Rate Chase High-Yield Savings Accounts - Blueprint for Financial Prosperity makes some nice points on why you shouldn’t rate chase.
• Laddered CD/MMC Safe Investment Plan - Another thought-provoking post from Blueprint for Financial Prosperity. This time, it’s on laddering CDs. This reminded me of a neat post a while back by Jonathan at My Money Blog about laddering with U.S. Treasury Bills.
• Mr. Toad’s Wild, Prosperous Ride - Prosperous Land has some tips for avoiding riskier Prosper loans given the economic downturn and shares a couple pointers on what types of borrowers may be safer.
• Credit Cards - Looking at the Cost of Paying the Minimum Due - Tricia from Blogging Away Debt points out why it’s a bad idea to just make the minimum payment on your credit cards.
• How to Get Paid Without Working - This one made me shake my head in disbelief. Free Money Finance discovers a guy that made $500,000 in passive income, however I wouldn’t recommend you model your strategy after him…

Tricia’s post got me thinking. As readers of my cash back tutorial know, it’s best to not only make more than the minimum payment, but to pay your card off in full each month. For people already carrying a balance that’s too large to pay off, this isn’t an option. I’ll be sharing some ideas in an upcoming post here about how people in this predicament can get to where they can start paying off their credit card in full.

Popularity: 24% [?]

I have been noticing in my web server logs for a couple months now that quite a number of people have been searching for a head-to-head comparison of the Amex Blue Cash vs. Chase Freedom cards. As subscribers to my cash back tutorial already know, I consider these two credit cards to be the best ones available today.

Given the number of people searching for this kind of comparison, I thought it best to prepare a quick post to help people decide between the two. So if you’re one of those folks that stumbled onto this post through the search engines, welcome!

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Popularity: 100% [?]

Last year was a year of change for me. I overhauled my system in 2007, which resulted in $892.78 more cash back than 2006’s total of $1,329.97 (a 67% increase). The main catalysts behind this increase were two new cash back credit cards, a new online checking account and a new online savings account.

Starting in May of last year, I switched my primary credit card from the Chase Perfect Card to the Blue Cash from American Express. I continued to use my Chase Perfect Card to back up my Blue Cash card, until it dawned on me that I could do even better by backing it up with the Chase Freedom credit card. So in October, I began using the Chase Freedom as my new backup card.

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Popularity: 59% [?]

According to their press release, Prosper.com has filed with the U.S. Securities and Exchange Commission that it intends to offer the ability for lenders to buy and sell their loan positions to other lenders. From Prosper’s press release,

Following effectiveness of the registration statement, Prosper intends to establish and maintain a secondary trading market online auction platform, or Resale Platform, pursuant to which lenders may seek to transfer borrower notes to other Prosper registered lenders.

The S-1 filing itself provides another clue. Apparently the service will allow loans to be bought-and-sold provided that they are at least 3 months old:

Prosper intends to establish a secondary trading market online auction platform, or the Resale Platform, on which the Notes may be resold after three months following the date that they are acquired from Prosper by the winning bidders.

This would be a great addition to their service, as the lack of liquidity has been one of the drawbacks for lenders. Having such a feature may also attract more lenders, as buying an already performing loan would naturally have less risk than taking one’s chances on a new loan with no history.

Popularity: 15% [?]

Have you ever wondered what it would be like to be a banker? A new trend is emerging online that will give you a flavor for what it’s like. Prosper.com is the leader in this new trend, called peer-to-peer lending, where people borrow money directly from other people, instead of through a more traditional loan with a bank or on their credit card.

What’s interesting about Prosper is that lenders bid on loans in an eBay-like auction format. A lender bids on a loan by specifying the dollar amount and interest rate s/he is willing to contribute to the loan. When the bidding period ends, lenders having bid the lowest interest rates on a loan are the ones that fund it.

This post will focus on the lending side of Prosper instead of the borrowing half, since the lending side provides passive income opportunities. The rate of return of this passive income depends on many factors including your risk tolerance, diversification, the amount of up-front due diligence, discipline with your lending rules, factoring in for any defaults, and finally a bit of intuition as to the borrower’s character.

My personal average APR on Prosper is currently 14.86% with 21 loans, no late payments and no defaults. None of my loans however are over 3 months old, so there’s still plenty of time to test the thoroughness of my Prosper strategy.

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Popularity: 27% [?]

This is part 2 of a 3-part review of Prosper.com. Part 1 can be found here.

The Downside

Prosper loans have more inherent risk compared to other kinds of interest-bearing instruments. The only money that should ever be put to work in Prosper are those funds that are purely discretionary; that is, money you can afford to be without.

A prudent mindset to approaching loans on Prosper is to take even greater care in evaluating them than you would with a stock on the stock market. Here’s why: continue

Popularity: 17% [?]

This is the final part of a 3-part post on Prosper.com. The beginning of this review can be found here.

The Bottom Line

For many people, Prosper.com is above their risk tolerance. As far as I’m concerned though, I am a firm believer that education, due diligence and discipline are great mitigators of risk. On the discipline front, I have created a set of lending rules I use when evaluating loans on Prosper. Any loan that does not meet all of the rules’ criteria is immediately out of the running. No exceptions. In future posts on Prosper, I’ll be sharing my lending rules along with periodic updates on the performance of my portfolio and additional lessons learned along the way. Stay tuned to the “Related Posts” section at the end of this post for more info on Prosper.

Getting Started

I recommend you start out on “paper” with your loans. You can sign up for a free account as a lender without any prerequisites or commitments. Once you have an account, research loans and write down those that you would have done if you were using real money. Track these loans over time to get a feel for how well you’re learning the ropes.

You can also learn from other Prosper members by “spying” on the loans they select. One of my absolute favorite sites is Eric’s Credit Community. I especially love watching the lenders on this page.

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Popularity: 17% [?]

Upromise is a nifty little free service that helps you easily increase your kids’ savings for college. Even if you don’t have college-bound kids, you’ll still be interested in what this site has to offer.

I have had a Upromise account for a few years now, and I love how their service is yet another hands-free way to make some spare change. Granted, you won’t be able to retire to the Bahamas from what you’ll make here, but it’s nevertheless easy money you don’t want to be leaving on the table.

Speaking of earnings, let’s explore that topic a little further…

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Popularity: 12% [?]