Why ReadyForZero (YC S10) Started A Company to Eliminate Credit Card Debt

http://blog.readyforzero.com/2010/10/28/why-we-started-a-company-to-help-people-payoff-credit-card-debt/

by ryanmickle • 16 years ago

132 86 16 years ago

blog.readyforzero.com

A noble goal. I wish you guys well; this is an issue that's pretty close to me.

For a data point, I am roughly $72k in debt from undergrad. This is due to a few factors, but largely because I saw a huge raise in price for the duration that I was in school. I also paid for 5 years, and room and board for my first two. Who knows when I'll ever end up paying it all back...

I've seen a few other situations where debt has really crippled people close to me. The emotional issues you talk about are certainly real, and can cause lots of problems paying stuff back...

This is one YC company where I'm _really_ interested to see how they make money. :)

charliepark• 16 years ago

Regarding making money, I'm assuming that it'll essentially act as a lead gen company, like Mint. If one of the ways to get out of debt faster is to transfer your balance to a card with a lower interest rate, and ... hey! look at this! we have three cards right here that will save you money each month ... it seems like it'd be an easy sell. In fact, I think the leadgen opportunity is even greater than Mint's, as these are people actively looking to change their debt situation, rather than people passively interested in what their money is doing.

steveklabnik2• 16 years ago

Yeah, it's possible, but since they've taken the extreme moral high ground here (and in the rest of their branding), they'll have to be careful about which offers they... offer.

seiji• 16 years ago

Brilliant: "Y Combinator is about 3 months long (June through August). 18 hours a day * 3 months = 1620 hours. Incidentally, that means my weight increased about 4.5 grams per non-sleep hour of YC. This is roughly equivalent to 1 paul gram."

cynicalkane• 16 years ago

I spent a while trying to figure out how 4.5 sleep-hours^-1 was equivalent to 1 paul, and why this is funny, until realizing that wasn't the intended joke.

dunstad• 16 years ago

I still don't get it :/ Where did the 'paul' part come from? (Yes, I'm aware of the play-on-words with the name.)

patio112• 16 years ago

Good luck and godspeed. I spent a couple years on the Motley Fool forums giving out advice to people for credit card issues. (I have quirky hobbies, what can I say.) Many of them would have benefited from something which automatically addressed their poor organizational skills. (And, sadly, many of them are far beyond the point where any amount of technology will solve their problem. If you're committed to living a $5,000 a month lifestyle on a $4,000 a month income... no, the evil credit card company charging you $500 minimum payments is not your problem.)

johnrob• 16 years ago

I was asking myself a similar question - do people want out of debt bad enough to cut spending?

Even if the answer is no, you can still make money from people's desires. Gyms are the best example - they sell access, but it's up to you to use it. For most people the sad truth is that the gyms end up taking money for nothing, and customers keep paying because of their own idealism. ReadyForZero, whether or not they like this idea, could profit in a similar way.

Tichy• 16 years ago

Hm, targeting customers with a history of uncontrolled spending might be the real genius behind this?

cosmicray• 16 years ago

People really need to be convinced that leading a normal, humble lifestyle is just as good (or even better) that one based upon peer pressure 'keeping up with the gang' spending patterns. I could go on and on, but I'll leave it at that. Money can't buy you happiness, but being deep in debt will certainly bring heartache.

patio112• 16 years ago

Part of the problem is that being in debt is a very, very minor problem until it is too major to easily get out. If you spend about ten thousand more than you make a year, your monthly minimums will not be budget busting. Then you continue that for a few years, hubby gets downsized or you get sick, and all of a sudden you're $80k in debt and just servicing the payments and rent eats all your income.

This is generally the point where the bank or the health insurance industry gets blamed for your predicament, sadly.

On the plus side, I know of some people who clawed their way out of six figure consumer credit holes. It takes strong will, for years.

sabat• 16 years ago

Great idea for a company; you'll have a lot of fans, including me.

heresy• 16 years ago

Right idea at the right time.

pg• 16 years ago

The photo is a good illustration of an interesting phenomenon we've observed many times: cofounders start to look alike.

ithayer3• 16 years ago

That was the first thing you told us when we walked into our YC interview.

innovate6• 16 years ago

I remember this well.

gcheong• 16 years ago

I'd really like to see a before/after gallery. Or maybe it could be shown graphically as a convergence of data points somehow?

kul• 16 years ago

I can still quite easily pretend to be harj

ig12• 16 years ago

Collary: You should find a cofounder who's more attractive than you.

eru3• 16 years ago

I hope the convergence goes into the right direction, then.

zeraholladay• 16 years ago

Several theories:

1. The less dominant personality emulates the dominant personality. 2. People that spend a lot of time together form similar habits and interests. Ever noticed how many guys in corporate america like the same thing? 3. People that spend a lot of time together engage in common consumption. For example, one person with bad eating habits will cause others to gain weight.

davidu• 16 years ago

I love it when new companies put up a "Why we started our company" posts/story.

I look for it often when thinking of using a company/service/product.

It's also wonderful for new employees to read when they join your company.

ithayer3• 16 years ago

Everytime one of these posts is born, a node.js article falls off the front page.

alain94040• 16 years ago

And vice versa.

I believe there is space for both.

speric• 16 years ago

I signed up; looking forward to getting an invite when you launch. Good luck.

look_lookatme• 16 years ago

Great idea. Good luck guys.

hariis• 16 years ago

Good luck guys! We need this kind of tools to stop this debt mess. Shameless plug: We have recently developed a simple app that calculates your affordability based on your financial data. You can use it as a quick check to make sure all your bases are covered before making any purchases. We appreciate any feedback, including from Rod and Ignacio. Thanks. http://caniafforditnow.com

innovate6• 16 years ago

Highlighting the "real" cost is critical. If something like this existed, say at the point of sale, I imagine lots of people would think twice about charging it. Thanks for the comment.

satishf2• 16 years ago

It might be little late to check for affordability at the point of sale. Once your in a store your heart takes over your mind.

bkj123• 16 years ago

Great cause. Looking forward to learning how they attack the problem.

From a personal stand point, I can't tell you now much relief/satisfaction I get since eliminating debt (outside of a mortgage) or how much stress I get when the occasional short term debt comes about (which motivates me to eliminate it).

They mention debt as a 'hair on fire' problem. What are some others?

jollyjerry• 16 years ago

Not sure exactly what you guys are building, but I hope it makes a fat dent in how credit bureaus work. I went through my first credit report from the 3 credit bureaus. Not only was the process archaic, but along the way I was bombarded by all kinds of predatory offers to sign up for paid credit monitoring services. After I retrieved my reports, I find inaccurate information, along with an account that I've never seen before labeled as an "adverse account". On top of that, I see misreported addresses and dates as well. From there, I had to do 3 separate dispute claims (all of them slightly different in process, but equally filled with spam). While on the phone with an Indian call center with Equifax, I was cut short every time I asked a question or tried to clarify, and at the end of the call I get yet another pitch to sign up for their paid credit monitoring service.

Please tear down and rebuild these sloppy and fat credit bureaus. At the very least, I hope you guys provide some solid competition for them to shape themselves up.

innovate6• 16 years ago

Fact: your info in great detail is available for about .20 for targeted marketing purposes. Thank you for the comment, we agree :)

btmorex2• 16 years ago

Even the basic reporting is pretty terrible. For example, I have a pretty low credit limit given my income (mostly because I stupidly canceled cards I wasn't using). For months I tried to get it raised without any success. Finally, I paid for one of those credit reports that has suggestions and found out my problems are because I've been "carrying" too much debt... except I don't carry any debt. It's just that my limit is so low when the month rolls around I often am using close to the limit (which I then promptly pay off). Basically, your credit utilization can be extremely high even if you pay in full every month.

Solution: pay in full right before the month rolls over. I've already had two credit limit raises after doing this... but why should I have to? Why should I have to arbitrarily change habits that have nothing to do with good finance just to appease credit bureaus that aren't doing a good job to begin with?

jimbokun2• 16 years ago

What about just going cash and debit for everything?

Are you afraid of not getting a good rate when it's time to get a mortgage? I've often heard the anecdotes about without debt but no credit card history getting turned down for loans, but I've also wondered if it's actually true.

s3graham2• 16 years ago

This blows me away: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/10/27/... "The average American ... carries $5,100 in credit card debt". No math education? Don't care? Peer pressure to buy crap? Or is that money really going to groceries and rent? I guess I live in an entitled bubble, but I really can't wrap my head around how people get in that state.

Is it relatively easy to get access to a user's credit card statements, or do you need to negotiate with each provider? Or do you just get their passwords and scrape?

joezydeco3• 16 years ago

Sometimes people get in this state because they have no savings to speak of and some unexpected large expense comes up. Your car breaks down. The fridge quits. The house needs a new roof. Your job downsized it's medical coverage to a larger deductible and your wife got in a car wreck.

Not everyone with massive credit debt was out there buying iPods and flatscreen TVs. The root cause (no savings) is a different story.

dedward• 16 years ago

People in this situation usually end up there because that's the most debt they can tolerate - they are making payments but the psychological pressure from the debt and it's consequences keeps them from going further into debt (or from fixing the problem)

Every excuse for why people end up in debt is moot if you realize that almost every single one of those people could have had a positive cash savings had they only planned better, and not NEEDED debt.... they used it because they could.

s3graham2• 16 years ago

Fair enough, the medical one has always sounded scary and inhumane to me for low-income/low-coverage USians.

Fridge, roof, etc. seem somewhat more self-inflicted.

hugh33• 16 years ago

I can easily imagine how someone can wind up carrying a balance on their credit card via some sort of minor disaster.

What I don't understand is how a full third of the US population has managed to get themselves into that situation and not out, and are effectively borrowing money at some crazy (16%+ rate).

philwelch5• 16 years ago

If you're not saving money you're still living above your means, because statistically, cars break down, fridges quit, houses need new roofs, and people get hurt in car wrecks. If you're buying flatscreen TV's instead of saving money for a rainy day and then using your credit card to buy a new fridge when your fridge dies, that's equivalent to buying flatscreen TV's on a credit card when you can't afford it with your salary.

Having a momentary catastrophic expense like that might require putting money on a credit card and not paying it off immediately. In the long run, though, that shouldn't cause systemic credit card debt because, just as you should have money to save at the end of the month, you should have money to pay down your emergency debts at the end of the month.

nanijoe• 16 years ago

I'm usually the last to 'get' some of these things, but in my experience, people are usually not in debt because they don't know how to get out.

I would not have thought you could make billions of dollars from selling coffee either, so all i can do is wish you guys luck.

fady• 16 years ago

what a great idea! Good luck my friends, will definitely try it out. Glad to see your local too!

amalcon2• 16 years ago

It seems a little ironic that, in an attempt to encourage financial responsibility in the area of debt management, they are effectively asking people to hand their financial information to an unknown party. I got a letter the other day claiming that I'd won the Spanish lottery that (if it were not a classic scam, if it were not postmarked from Texas, and if not for the YC stamp on ReadyForZero) would have been only a little less credible. I mean, they're even hosting the McAfee, TRUSTe, and VeriSign stamps on their server.

Let me be clear: I do not think this is a scam. I just think there are some mixed signals here. You should be very up front about exactly what's done with the user's information and how it's secured, and give them a reason to think you're for real. An endorsement from someone well-known would do wonders.

Some of your potential customers are likely in debt because they've fallen for scams in the past. Don't let them be scared off.

ithayer3• 16 years ago

Well, we're working on becoming a "known" party, which is why we're starting to engage people early. We appreciate open dialog.

Great pickup on the stamps. We've paid for and been approved by the services. For A/B testing the signup page, some users are directed to a service where we cannot link them. Our site hosts them properly.

amalcon2• 16 years ago

Nice to hear that you're giving the matter some serious attention. I suspect you'll need a very good PR guy if you're going to try to build a reputation organically. Best of luck to you, absolutely.

jim_h• 16 years ago

I tried looking for more details about how exactly the company helps eliminate debt. Certainly even more cautious at the idea of linking up my CC to a website.

If there were more details explaining the process, I think more cautious people (like me) would be willing to try it.

innovate6• 16 years ago

This is absolutely spot on, you will need to trust us like a good friend. We plan to lay out all the details in a transparent way and clearly explain everything as much as possible.

satishf2• 16 years ago

I am in US only for few years (4) and it is hard for me to believe that someone can have such a huge debt. How can you have such huge credit card debt.

LaPingvino• 16 years ago

Let's make getting out of debt cool and fun to do ;)

I think personally that the biggest part is education. Here in Brazil a lot of people would benefit from such a service as well. If you need help at some point internationalizing it, please get in touch :).

hardtke• 16 years ago

Not sure you are aware, but the FTC recently wiped out the whole debt settlement industry by making it such that you can't charge upfront fees for debt settlement programs. Before that, debt settlement was one of the most lucrative verticals on the Internet.

innovate6• 16 years ago

The debt settlement/counseling/management space has been around for over 60 years (since the 1950s), and like other billion $ industries it has gone through a variety of "regulatory" reforms and legal shake-ups. Every industry goes through that.

The debt counseling industry and, in some cases debt settlement, benefit creditors by providing an alternative way to recover funds as compared with bankruptcy or collections. In fact, under what is called "fair share" creditors give these companies direct kickbacks. The % has been reduced significantly because companies were making too much.

If you dig deeper, you will find many creditor and bureau executives working at these non-profit counseling organizations. The business model is a critical aspect in understanding how this industry works.

With all that said, we do not plan to do any debt settlement.

For additional details on the history, take a look at the Uniform Debt-Management Services Act paper (http://blog.readyforzero.com/industry-research/).

Thanks for the comment.

spenrose• 16 years ago

Wonderful cause. I'd love to read about the tensions between your goal and the various business models that suggest themselves. You will succeed at your mission precisely to the extent that your users reduce their spending relative to their income. How will you create a mechanism that flows money to you and your users at the same time? Who pays (net) and why?

MrFlibble• 16 years ago

The lending industry is so predatory these days it would make Jaws swim away in fear.

minalecs2• 16 years ago

As much as I admire these guys.. The same reasons that people got themselves into unmanageable credit card debt are the same reasons why using a service like this wouldn't work. The main way people get out of debt is to declare bankruptcy and work out better deals. Its easy and fast, and they never cared about their credit in the first place. Best of luck.

innovate6• 16 years ago

We do not agree and have people using the site today that claim the visibility (interest rates, payment history, credit score, etc.) and automatic planning gave them exactly the edge they needed to start making significant progress. These products (credit cards) were designed to be opaque and difficult to manage.

minalecs2• 16 years ago

Being responsible and watching your balance, and paying a scheduled monthly fee is not difficult to manage. Banks allow for scheduled payments as well, its a one time setup. I think the being responsible and holding people accountable to being responsible, is something that maybe you are working on , and hope that it works. Best of luck.

points• 16 years ago

Either you'll do a great job getting people out of debt, or you'll be profitable. You can't do both.

weredebtfree• 16 years ago

It's pretty straightforward, actually:

http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-...

Seriously though (on second thought, that was pretty serious), about 5 or 6 years ago this offline app helped us become completely debt-free (and saved us a bundle on interest fees in the process):

http://www.zilchworks.com/zilchstandard.html

If ReadyForZero offers users similar functionality and the pricing is fair, it will more than pay for itself.

bambax2• 16 years ago

ReadyForZero connects with people and empowers them with the right information...

"Empowers them"?? When Obama said to Jon Stewart that Larry Summers had done "a heck of a job" fixing the economy, Jon laughed and responded: "dude, you don't want to use that phrase". (Obama then said "pun intended", but still).

Same here. If you're going after credit card companies and big corporations, please don't try to "empower" anyone, because by now people have learned what it's like to be "empowered" (hint: it hurts).

Also:

- most of their data seems to be from 2006 -- that was a long time ago

- many problems listed, not many solutions

- it seems highly improbable that people are drowning in debt because they don't know better; people have debts because they can, because they enjoy it -- they enjoy the goods the debts help buy, and the debt, they forget about it.

natep• 16 years ago

On 'empowers' - what has caused people to learn that empowerment hurts?

On the data - I see that the last NIST was 2006, they cite one 2006 source, a 2008, and a 2009. That seems pretty good to me, considering that the oldest one is a paper, and not an annual report.

On problems:solutions - their product is the solution, and they haven't launched it yet. They can't really describe something that hasn't launched yet.

On not knowing any better - two things.

(1) you underestimate how important timely feedback is. I can't find the link easily, but when people have a light installed in their home that goes red when they're using a lot of energy, and green otherwise, people conserve more energy. When you don't find out until the end of the month how much you used, you can't adjust (this is also covered in any controls class. Introducing a delay will usually cause instability)

(2) I have <$2k on my credit card (and pay it every month), and I hate how opaque things are. I have to log into my credit card site (already annoying) and ignore the big 'balance' number and hunt for the number that is what I have to pay. I can't imagine how hard it is for people that don't/can't pay their balance in full every month, automatically.

bambax2• 16 years ago

Empowerment is a word used by big companies (and found many times in Microsoft marketese) to tell people they are going to be more powerful if they use their tools, when in fact they are going to get screwed, and pay every penny for it.

When you think about it, power is not given, and esp. not given from the powerful to the powerless. Power is something you take.

The fact is that the "empowerer" is looking down on the "empoweree"; if we're talking about parents and children, then maybe that's fine; but if we're talking about companies and customers, or bosses and employees, then beware (better still: run).

That's the issue that I have with this article: it sounds like ordinary marketing PR, and plays on two very different levels. "OMG! Debt is a big problem! And look! we've found a (secret and unique) way to solve it!"

Debt is a little bit like smoking: on a national scale, it's a huge problem, very difficult to solve; but on a personal scale it's not really a "problem". You want to quit smoking? QUIT SMOKING.

Those guys seem to be talking about debt at a high level (where solutions would be needed, but are hard to find) to sell their individual-level solutions (which are easy to find, and therefore not really needed, since if people really wanted to be out of debt, they wouldn't get into it in the first place).

Why ReadyForZero (YC S10) Started A Company to Eliminate Credit Card Debt

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