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.)
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.
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.
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.
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."
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.
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.
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.
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.
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.
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. :)
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.
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.
Indeed. I know of someone quite poor that paid $500 to have his credit repaired. They got around the laws by calling it education. Most of it amounting to having him send out form letters that looked like fraud to me. The letters would say debt wasn't his. He didn't seem to read or understand any of it, but happily sent out the letters. I wonder what the court that had a judgement against him for child support thought on getting a letter saying it wasn't his debt?
When someone says the little things don't matter, tell them that those who'd bought Apple stock in the early 2000's instead of a pack of cigarettes or 6-pack of beer could have ended up with a couple of hundred dollars for each one instead.
It's a major adjustment, but people should live within (below actually) their means. Unheard of to do without cable tv, cook your own meals from basic ingredients, or give up alcohol or smoking? Some people need a serious reality check.
I'm extremely suspicious of a for-profit venture to "help" consumers. Just what is there that a consumer can't get or do for free? It seems many consumers have fallen victims to so-called help. The article mentions plenty of easy to relate to grief situations, but is very short on solutions.
Remove social stigma for debt? I'd say that depends on the circumstances. Some would have made better choices if they'd seen MORE social stigma attached.
Talk to people about paying rent, and few are very happy about it, but let them rent money.....
>Unheard of to do without cable tv, cook your own meals from basic ingredients, or give up alcohol or smoking? Some people need a serious reality check.
I think you underestimate how difficult some of these things are.
Cooking meals is a non-trivial skill, many people don't have the time or money to learn, they can't afford to "experiment" with cooking, because if their children don't want to eat what they make when experimenting then the children are going to go hungry.
Cable TV is often the primary form of entertainment, and is much cheaper than going out or the most popular form of "free" entertainment, unprotected sex.
Cigarettes are addictive, telling a smoker to stop smoking is no more effective than telling an obese person to stop eating.
Cooking meals is a non-trivial skill, many people don't have the time or money to learn
Saving money over eating out all the time is easy. Canned food and spaghetti are trivial. Most veggies are fine totally raw. Rice and veggies can be done brainlessly with a rice cooker. A George Forman grill and a giant bag of frozen boneless skinless chicken thighs is cheap, healthy protein.
Being able to cook creative homecooked meals is hard, sure. Cheap foolproof meals are easy, though.
they can't afford to "experiment" with cooking, because if their children don't want to eat what they make when experimenting then the children are going to go hungry.
Kids get to refuse eating what they're served? News to me. I was sixteen years old before I was able to get away with refusing broccoli and brussels sprouts. I was a pretty disobedient kid, too. So I don't really understand this argument. Some parents are so spineless they'll cave in to a kid's choice of meal?
Cable TV is often the primary form of entertainment, and is much cheaper than going out or the most popular form of "free" entertainment, unprotected sex.
Unfortunately this is a major cultural problem. Fortunately, almost every other consumer startup is solving this. The internet contains Facebook and YouTube for free, and Netflix for far, far cheaper.
Cigarettes...are addictive, though. One of the most addictive drugs ever. I have no argument with you on that point.
> they can't afford to "experiment" with cooking, because if their children don't want to eat what they make when experimenting then the children are going to go hungry.
Cooking meals is a non-trivial skill, many people don't have the time or money to learn, they can't afford to "experiment" with cooking, because if their children don't want to eat what they make when experimenting then the children are going to go hungry.
Cooking is easy. Saying it's hard it just an excuse. Get some meat, frozen veggies and potatoes/rice/bread and you can easily make a basic meal in 30 minutes. And really, you're talking about the kids going hungry when food is on the table? Growing up I learned quickly to eat what my mom cooked or 'go hungry.'
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.
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?
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.
Actually, my card gives decent cash back and it's definitely worth it if you try to put as much as possible on the card. I haven't heard of a debit cash back card.
US Bank used to offer cash back on debit cards; don't know if they still do. ING Direct occasionally has cash-back promotions on the debit card for their Electric Orange checking account, but only for new accounts.
You're right in that credit cards are still useful if you use them right, though. There are certain protections (chargebacks) plus the benefits you note. Credit card companies are like casinos--they give you tons of benefits if you use them hoping you'll go on tilt and waste tons of money. If you're smart, sometimes you can beat them at their game.
Forget the analogy, this ain't Vegas. All you gotta do is remember to pay one bill on time every month and you're a (small-time) winner.
Oh, and you should make sure you never spend more on your credit card than you have in cash to pay it off; but you should have at least several months' expenses sitting around in cash anyway, so this shouldn't be an issue as long as you have good financial habits.
For an average-income person with good financial habits a 1% cashback credit card is a net win of maybe two hundred dollars a year. Not a huge deal, but the best financial habit you can have is not saying no to small savings.
But this is what the Vegas analogy means: if you follow the optimal strategy while gambling and stop when you've gambled enough to be comped a room, you'll be +EV compared to the normal cost of the room. It's just as easy as paying off your credit card bill every month, assuming similar levels of financial discipline.
Hmm, I didn't know that the comps worked out that way; I always assumed that the value of the comp wound up less than your expected losses even with optimal strategy. Nice to know.
Still, it's a lot easier to remember to pay a bill on time every month than it is to play optimal-strategy blackjack for hours with no mistakes.
The analogy holds, but it's not all that good an analogy since there's a severe difference in the difficulty and the risk/reward ratio. Some things are better explained in their own terms than via an analogy.
The kind of person who vacations in Vegas isn't likely to be someone who makes rational economic decisions about +EV comps, so Vegas isn't worried about offering +EV comps. If you're a rational +EV economic decision-maker, you either don't go to Vegas, or you live in Vegas and make your living beating tourists at poker. Either way, you're not the one being comped a room--more often, it'll be someone who goes on tilt.
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.
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.
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?
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.
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).
Some of those crazy rates come from credit card companies that have discovered that people's procrastination and forgetfulness can lead to great profits.
Miss your payment deadline by an hour? $39.99 late fee. Miss by a week? We'll crank your rate up to 29.99%. Oh, and we'll report it to the credit bureaus so they will find out and other cards you have will crank up to the default rate.
Now you've got multiple cards at the max rate. The minimum payments skyrocket. Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit. It goes on and on.
There have been new laws to limit this kind of behavior from the banks, but banks are pretty clever animals. They'll find new ways to make their profit.
Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit.
This is known as negative amortization, and it's not the way credit cards work. Or any loan where "most" of the payment is interest, for that matter. If you're paying any principal, you're paying down the loan. To my knowledge, credit card companies are required by law to set the minimum payment high enough that some principal is paid. Of course, it's only enough that you won't finish paying them off for twenty years, but it is amortization.
Not using the card, its gone in the shredder after I maxed it out to pay for back surgery. But without a doubt the balance goes up every month. I'm not a computer with a PDF reader at the moment but my credit card statement shows that if I continue to pay the minimum every month it'll take over 2600 years to pay off and I would have paid over 2 million dollars in interest by the time its paid off. This is for a US card as well.
Then let's clarify my hyperbole: if you make minimums, you're going to need a long long time to get out of the debt. Decades.
New laws and higher minimums are working to alleviate this problem, but if you can't make the minimum as it is, how will you do it when the minimum has doubled?
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.
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.
Both the fridge and the roof are problems which are moderately expensive for low-income people to fix immediately, but which grow into more expensive problems if you ignore them. It's easy to see how the roof will be more of a problem in a few months than when you first noticed it leaking, but not having a working fridge means you can't buy food that requires a refrigerator as cheaply. Not only is it more expensive to buy smaller quantities, but you then have to visit the store more often, which uses more gas, etc. Someone on a budget is probably only grocery shopping once or twice a month, since the best deals are in bulk, but not having a place to store cold food removes that option.
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.
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.
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.
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.
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.
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).
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.
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.
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
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.
Yes, but the real cost might affect your choice. E.g. two fridges in the store, one costs more initially, but uses less power. Knowing the real cost can be a win-win situation for you and the store here. They get more revenue and you get a smaller total cost of ownership.
The incentives for stuff apart from energy efficencies may be different, though.
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?
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 :).
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):
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?
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.
