What happened to "stop buying things you don't need"? I had a friend tell me he was considering a consumer loan because repaying his other loans didn't leave him with enough money.
I swear, it's as if people have never seen money before.
Elizabeth Warren said that in their bankruptcy study, the vast majority of people who filed for bankruptcy didn't do it because they "bought things they didn't need". They did it because they overextended themselves to get a house in a good school district and then one of them lost their job or they had a medical emergency.
It's easy to paint those people as irresponsible, but according to her, it's very far from the truth in most cases.
I remember a study on general aviation plane crashes. They found that very few plane crashes came about because the pilot made a single, obvious mistake. Instead, the common pattern was a series of missteps, each so small that you couldn't properly call it a "mistake" in and of itself, the pilot was just cutting corners on the recommended safety margin. And then something happened that was out of the pilot's control, like bad weather or distraction or mechanical failure. Because the safety precautions that make it normally possible to recover from these events weren't followed, this resulted in a crash instead of merely a nerve-wracking landing.
I think the same thing happens with finance. If you look at the proximate cause of bankruptcy, it's almost always that somebody has a health emergency or a death in the family or loses their job. But many people have health emergencies, deaths in the family, and stints of unemployment without going into bankruptcy. And the reason why is the same thing Benjamin Graham and Warren Buffett have been espousing in investing for years: Margin of Safety.
If you always live on the edge, then it's a given that sometime you're going to fall off. Hold back 6-12 months reserve of salary, and suddenly unemployment doesn't look so scary. Health insurance makes a sudden medical emergency not quite so scary. Have $10-20K in the bank, and you don't need to worry that totaling your car is going to send you into crippling debt.
The irresponsible part is not that these people got sick or lost their job, it's that they didn't prepare for contingencies where they would get sick and lose their job. There's this culture in America where as soon as you start earning more money, you have to spend it on something, otherwise you're wasting it. But there's a tension between resiliency and efficiency, and if you're always being perfectly efficient, things tend to go very wrong when they go wrong. Make your bargains accordingly.
Man, you are clearly speaking from a position of privilege on that one. How the hell do you hold back 6-12 months salary when you can barely afford the rent, utility bills and the costs of raising some kids to begin with?
Haha, just hold back 6 months salary! You make it sound so easy!
It's not that they didn't prepare, it's that many of them have no means to prepare, and barely have the means to continue as is.
Many also believe that it is worth risking living on the edge to support a better school for their kids (ideally breaking the cycle), than moving to project housing and dangerous gang-controlled areas in order to enjoy their "margin of safety". I can't fault them for that.
And, if you're in such a position, and aren't fortunate enough to have your area of expertise and interest involving computers, good luck getting a job without a degree. So what do they do to pay for the outrageous tuition costs these days? Take a giant loan from Sallie Mae.
If you're willing to move, and live with roommates, it's fairly easy to live comfortably (assuming no children) on 12k/year total. Assuming you're making minimum wage-ish, that's 8k to put in the bank every year.
yeah, what? that's a lot of assumptions. people don't live with assumptions, they live with the realities of having a kid or a spouse or a family or even a girl they just can't get over.
I was responding to a post about 'holding back 6 months salary' as a safety measure, with a simple example of how to do so. Obviously, this is something to do before you go and start a family. My point was not that it's possible for everyone, but rather that it's not as unthinkably hard to do as one might think, even on minimum wage.
I think your point about having financial reserves is relevant, and I also think that having the motivation to have a reserve requires financial sense that, unfortunately, is not wide spread.
I am an attorney that does volunteer work by handling bankruptcies "pro bono" through a local non-profit. Every bankruptcy case has it's one unique set of circumstances but there is a consistent pattern. First, the debtors don't have a good understanding of money or personal finance. Usually that's a product of not having parental examples of good money handling. Second (and perhaps because of the lack of understanding) they don't pay attention to finances if there is a resource to pay for things (cash or credit). Third, there is a watershed event like a loss of a job or a major health crisis. Fourth and finally, they wait too long before getting help. If I were king for a day, I'd make sure that financial education was mandatory in high school and was spread out throughout the high school years rather than being taught in a single quarter or semester.
Health insurance makes a sudden medical emergency not quite so scary.
Until the insurer refuses to pay, and the "insured" lacks the resources to pursue a lawsuit. Maybe I'm the only one who's ever had that happen, but I rather doubt it. Reading further down, looks like someone else here has been through it too.
If it's a calculated risk, why is this a problem that needs a YC startup to fix, rather than simply a risk that didn't work out?
There're certainly people that take on debt as a calculated risk because they believe it'll pay off in the future. My parents did that to send me to college, and it did pay off. But when it fails, they usually just go "Well, shit," and fall back on their contingency plans for how to handle it if it fails. If it's a calculated risk, they've been making those plans, right?
But the fact that there's a startup out there to solve this problem (several, actually, but this one seems more above-board than the alternatives on the radio) indicates that this wasn't a calculated risk for many people. The essence of a calculated risk is that you go into it having done all the due diligence you need to weigh the possible consequences, and then make your calculations based on that. What's there for this startup to sell if people have already done that?
You're taking a calculated risk every time you get in your car, right? So, what's your backup plan in case someone T-bones you and you end up a paraplegic? You have one, I assume.
you're making the definition of calculated risk much more technical than it needs to be.
I ain't saying they did a formal cost-benefit analysis of the whole thing.
You seem to think that people can or ought to have an answer for every situation, should be prepared for every contingency; that there is a perfect understanding that one can just _follow_ and have everything turn out alright. That's great if it's how you can live your life, but 1) one day I bet you'll find that your preparation and contingencies were just an illusion, that luck has had its way with you--I mean, haven't you ever wondered what would have happened to you if your dad just died when you were 12? _That happens to people who were just like you_; and 2) most people don't have that and have to make choices without knowing what's behind the next door.
It's a YC startup because even if a person was willing to accept the cost of the contingency labeled "risk that didn't work out," there's still a valuable service in saying, surprise!, you will pay less for taking that risk by using our shiny software!
“Families with children are tightening the belt one more notch,” she says, “are working extra hours, are sending both people into the workforce, to try to get into the best possible school district for their children.” But she adds one key, and very humane, caveat: “Families are in financial trouble, not because they’re irresponsible but because they’re too responsible.”
Warren is of course sympathetic, but she is obviously using the "search for a good school district" as only one example of how families are "too responsible".
Not that I believe Warren's last sentence is correct: my simpler and less charitable framing of the facts is that people simply bought homes that they could not afford.
No, her study didn't show that. Her study does not address causality at all.
# bankruptcies caused by a medical emergency = # of bankruptcies x [P(bankruptcy | medical event) - P(bankruptcy | no medical event)] x P(medical event)
Warren's study only measures P(medical event | bankruptcy). A bunch of innumerate reporters drew the same conclusion you did (admittedly, with help from Warren's confusing language), but that just shows the media is stupid.
I truely don't buy into the whole "good school" thing as being overwealmingly important for a child's future happiness and success. Though this is based on my own personal experience rather than solid data.
Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended. I think the main factors to my economic success was being taught to enjoy reading at a young age by my parents. I have always devoured information and through that have made a career without any qualifications.
The emotional/social success and general happiness I experience is a little harder to point to a source but certainly didn't come from the shit hole high school I attended. I generally attribute it to my parents teaching me what to value and growing up in an emotionally secure environment.
This security and parenting happened even though my parents fought each other constantly and divorced in my early teens. The were both dedicated parents who presented a consistent set of rules and values.
Of course I could just be on the further end of the bell curve?
>Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended.
But would those factors be the same at a different school? I'm going to commit a minor sin and say a statistic without a citation; the average ACT score among teachers in Chicago was 19 a few years back.
You say you went to a shit hole high school, in which case you really _should_ have a sense of perspective on the whole thing. If your school was a shitty as you say, you must have been near the very, very top of your class (not in class rank but in overall success). That's a huge distribution of people who are _not you_, who went on to more desperate lives.
Is the debate here about poverty or is it about debt?
Money is just the messenger in the economy - it transmits information to you about what roles might or might not be valuable, and from you as to what goods and services you would like to consume. It's not hard to stay out of debt - you simply have to heed the message that money is transmitting to you.
Poverty is a wider question, and includes whether or not it is fair & just that some people have to make the sacrifices needed to stay out of debt. When I say that you can simply choose not to send your kids to college to avoid taking on crippling student loan debt, that is a 100% factually true statement. When you then say "But one shouldn't have to forgo an education to avoid going into debt", that's a normative statement. It's one that I'd probably even agree with you on, but it's a much broader conversation with no clear answers about how to fix it or even what the problem definition is.
It is about both. Debt means plunging closer towards poverty. Escaping from poverty means being careful about debt.
The debate is actually about what informational tools people have available to them. This is demonstrated by your statement:
>It's not hard to stay out of debt - you simply have to heed the message that money is transmitting to you.
which is equivalently "It's not hard to stay out of debt if you're equipped with the attitudes that let you stay out of debt" which is tautological and therefore a non-statement. My point is that poverty _means_ being less likely to understand money.
My point is _not_ accurately summed up by "But one shouldn't have to forgo an education to avoid going into debt." I make no assertion about what a person _should_ do because that doesn't have anything to do with what they actually will do. I would prefer the phrasing "People _will_ choose a risk of debt in order to have their kids better educated" as that more accurately captures the situation. Not all of the people who put it all on the line to live in a better neighborhood ended up in debt. Some of them got lucky and did not have medical emergencies--for them, the risk paid off.
So your statement about whether or not schools are "overwhelmingly important" is true but irrelevant. Schools aren't overwhelmingly important, but they _are_ important. They improve the odds of success. Your personal success in a shit-hole school does not speak to the average of that school nor does it comment on whether or not it is sensible for a parent to risk additional debt for a better school.
That may be true in your situation, but when you have long-term obligations like a mortgage and kids in school, you're a bit less agile in your ability to respond to changing economic situations. If what you're suggesting is simply to not take on any long-term obligations that you don't absolutely know you can afford, that's a bit naive I think. For most people, being unable to work for a year will mean you either liquidate your life or you go into debt. Most people may not end up there, but according to your statement, everyone should live like they would.
It's not something I'd do, but I have a hard time blaming someone for making that sacrifice.
a) Why is it that you won't do it?
b) The issue is that they're sacrificing the financial security of their kids by living on the edge and that is irresponsible if you're someone's guardian.
Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible?
Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible?
Those are two different questions.
When it comes to a company, the answer is very often Yes. The purpose of most companies (there are some exceptions) is to maximize profits using all ethical and legal means. If the expected payoff of the capital investment the loan would finance is greater than the interest of the loan, then taking it very often makes sense even if it would risk bankruptcy if something goes wrong.
When asking about the government, it matters a lot about what you think the purpose of government is, and that is a philosophical question I will leave alone for now.
Mainly because I don't have any plans to have kids, but I'm also not the sort to take that kind of risk. I'd rather supplement a bad school with good resources at home and plenty of guidance.
They are risking having their kids grow up with less access to resources in order to give those same kids one of the primary benefits of access to resources. If they did the research, understood the consequences, and were sincere about their reasons, it is the very epitome of a calculated risk.
It's not like the potential downside is living in the car. The potential downside is maybe being forced to rent in a worse area, and having trouble buying things on credit for a while.
The parent wrote: "They did it because they overextended themselves to get a house in a good school district and then one of them lost their job or they had a medical emergency."
So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life.
Health insurance, but the problem is that pre-existing condition clauses can prevent you from getting insurance coverage at any cost.
The other alternative is simply "die", but rationally, there's little reason to choose that over bankruptcy. I wonder what happens to medical debts if you commit suicide over them... (Or what happens if you try to commit suicide and fail?)
"So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life."
This is exactly true. Someone above mentioned that people buy houses, to get into a good school district. Why can't we allow people in bad school districts to go to another school? I will give you the answer: teacher's unions.
I always try to have at least 6 months (IE: I could survive for six months without a job) salary in the bank. I got laid off a couple of weeks ago and now I'm fine. Many people I know, that decided to live beyond their means, are now worried that if they lose their job, they will be in trouble.
Everyone wants to blame the medical system (which does need work) and ignore personal responsibility. Medical emergencies that result in bankruptcy probably happen to less than 5% of the population. It's almost as bad as the terrorist fear mongering.
> Times your "probably less than 5%" by twelve and you're closer to the truth:
Nope. They miscounted and several other problems. (When someone goes broke because they're an alcoholic and lose their job, do you really think that's a medical bankruptcy?)
Google "mcardle atlantic medical" and start reading.
The most useful way of thinking of CC debt is how much it INCREASES THE PRICE of what you buy.
That nice lunch might cost 20$ if you paid cash, but use your CC and it's really 20$ + the interest you are going to pay. If it's going to take you 4 years to pay off your 20% APR CC debt then that 20$ lunch is really 41$ 50c.
PS: That is not to say paying cash for lunch changes the numbers when you are in debt; CC increases the cost of "everything" you buy without exception.
You know, obviously you are right. But, I think people (especially intelligent HN type people) greatly underestimate how much psychological tricks affect them. I know deep down that spending with credit card is the same as spending with cash. But, I tracked my spending using cards and only withdrawing from ATMs and using cash. I spent about 20% more. And my life didn't feel any better or anything. Now I use credit cards on the big stuff- like travel, transportation costs, and other large ticket items where credit versus cash is unlikely to affect me spending habits. Point is, you get some tiny cash back, but I think for 99% of people you spend more than you get.
I find it's easier to track spending by credit card.
I download a csv of my transactions, import into ledger (https://github.com/jwiegley/ledger/wiki/ it's like mint, but for the command line), then just "ledger balance --cost expenses". All my CC transactions are labelled ("expenses:entertainment:bar", "expenses:computer:github"), then I have a big black box: "expenses:cash".
This is actually the reason McDonald's started taking credit cards. Studies find this again and again that people buy more when putting it on their credit card.
Do you think giving 2% cash back is just the credit card companies being generous? They are making way more through that scheme. Plus, those cash-back cards generally take a higher percentage which will lead to higher prices to compensate.
I'm the opposite, when I withdraw cash and spend it, I have no idea where it went. When it is electronic, then my weekly accounting will show me where I've been spending money and I'm more careful with it.
The best thing I ever did to save money was to track where I'm spending it.
It helps to know that but the problem is that you don't really feel the weight of the extra cost as we tend to discount the importance of things we see as being off in the future. Sure that dinner is going to ultimately cost me $41 but that's spread out between next month and 4 years from now whereas getting that dinner now gives you an immediate reward and our brains are wired to weight immediate rewards more heavily.
Considering that this is pretty much the primary way that education is paid for these days, simply repeating "debt is a bad idea" hardly seems adequate.
(and I am personally happy to be debt-free but I can see why my indebted friends made the choices they did, however badly they may have worked out).
Unless you're going to a top-tier college and majoring in a marketable skill, that is a bad idea too.
There's a bubble in higher education where many people are being promised a good life merely by going to college. These people get out of college, find out that such a good life was just a mirage, and then find out that the $200K in debt they took on for it wasn't such a great idea either.
The responsible thing to do there is to just say no. Don't go to college, and find ways to prove that you can add value to people without that college degree.
Well, I'm in Quebec, so a BEng at a very good university like McGill costs less than $4k a year, all fees and insurance included. Granted, the US appears to be more expensive.
Though you're being rather flippant, I agree this is the key.
When there's a mountain of debt before you, the little spending decisions you make today seem to have no consequence on your fate. The cappuccino and Wired magazine that you buy on the way to work are of no consequence compared to all the money you owe.
Clearing debt can feel like digging at that mountain with a dessert spoon.
> Clearing debt can feel like digging at that mountain with a dessert spoon.
Right, and the prize for those who have the discipline and patience to finish? nothing. (well, nothing tangible anyway)
It reminds me of the "Bee Sting Theory" article (http://news.ycombinator.com/item?id=1467832). We are conditioned to view our finances in a competitive way, as a measure of our social value...and people deep into debt feel like they are so far behind their peers financially that they can't ever catch up anyway- so rather than futily trying, they cheat and try to buy the status symbols on credit instead. Stupid yes, but easy to understand on a psychological level.
It's really much more complicated than this. There are a lot of people in this country who live paycheck to paycheck. Some of those people got there by living irresponsibly, and some didn't. When you're living paycheck to paycheck and an emergency comes up, you use whatever means you have available to get through it. I've certainly been in situations where I've had major unexpected expenses (medical, auto, home, business, etc) that had to be covered, and the only option was to put it on a credit card and hope I could pay it off later.
I can understand living paycheck-to-paycheck if you're making $20K/year.
I can't understand living paycheck-to-paycheck if you're making $100K/year, and yet many people seem to do that. Why not live like someone who makes $60K/year, which is a perfectly adequate lifestyle, and bank the rest for emergencies?
Definitely, but I don't think that's how the majority of people get into debt. My cousin can't make ends meet (he has a deficit of 100 EUR/mo) but he won't quit smoking and he just got a ceiling mural painted. When I asked him why he did it, since it set him back two months, he said "I didn't realise until after the guy had started painting".
i rang up about 5k in credit card debt. six months ago, i decided to put my nose to the grindstone and get it done.
i paid my last $600 off this morning.
i stopped buying unnecessary shit, stopped eating out all the time, and most importantly, made payments -every- time i possibly could. if i opened my bank account online and had $400 left in checking, i'd put $250 into the card. if i had $200 left, i'd put $100. there are a whole boatload of $50 payments and many even smaller.
just start paying and don't stop until it's gone. pay your bills, stay fed, and whenever you have money left over, move it to your credit card. try to make a small payment every couple days. just focus on that damn number and make it smaller every single opportunity you have until it reads "0".
i also made enough during this period to pay for a trip to jamaica in cash. i only make $39,500 yearly so it's not like i'm hauling in bags of dough, but focusing on my credit card debt also had some interesting side effects - like learning money management and learning how to save WHILE paying down old debts.
it got to the point that i found more joy in moving $50 to my credit card than going out and dropping $50 on drinks over the weekend. it's funny, but all that stuff that i just 'had' to buy before ...... it turns out i didn't. imagine that.
I'm sure you're up there with those who think that people who owe large sums of money should "just work harder" or "lay off alcohol and cigs".
I had a medical injury that has royally screwed up my life. I also HAD insurance, but starbucks switched insurance and I was now in preexisting condition hell. I had no money for a lawsuit, so I'm now 12k in the hole, along with basic living expenses that I had to cover while not being able to work. Its upwards of 20k and I have no way to pay it off.
So no. Quite many people in USA are just 1 accident away from ruin. I've seen it 3x before, and now with me. And there's not much at all that could be done.
'I'm sure you're up there with those who think that people who owe large sums of money should "just work harder" or "lay off alcohol and cigs".'
You say I'm "up there" like I'm some sort of snooty asshole for working my face off for six months to pay off my debt. I have my vices (I love you, Mary Jane) and I still managed to afford them so make whatever assumptions you will about me, I just found it more gratifying to work on my debt rather than get canned every weekend (not at first, it took a few months to get to that point).
I feel for you in regards to your injury, but 20k is pretty damn far from insurmountable debt. If anything it sounds like you've given up on yourself, and that sucks because I've been there and it's a tough spot to break out of.
I worked my ass off for six months to pay off 5k - work your ass off for 24 months and you'll be well on your way to knocking down that 20k.
I was 25K in credit card debt when I got out of school. I moved back in with my parents and pretty much didn't do anything outside of working and sleeping for a year, and paid it off I am still debt free (this was 5 years ago).
It takes self control and discipline, which most people don't have.
It's easy to be judgmental. What would you have done if you didn't have parents to mooch off of for a year? What if you had a family to support?
It's easy to tell yourself you succeeded all due to "self control" and "discipline". But the truth is like many judgmental types, you had considerable practical/emotional support as well.
"What would you have done if you didn't have parents to mooch off of for a year? What if you had a family to support?"
What if a cow comes stomping into your front room and demands that you feed her shredded hundred dollar bills until she's full enough to tap dance her way to victory in the upcoming school competition?
Hypothetical aren't arguments, they're just anchorless questions. You have to look around yourself, figure out what to do, and do it. It may take extreme measures and you may encounter setbacks, but you can't let hypotheticals stop you. What do you have, right now? You don't have to worry about the hypothetical things happening to other people. How can you leverage it? Can you move somewhere that has more stuff? Do you need to declare bankruptcy? Do you need to find a private charity to help you out? Sometimes drastic action is called for.
Very few of us are handed life on a silver platter, and a goodly number of those people get the silver platter yanked at some time during their life. We all got problems. Solve them to the best of your abilities, or don't. I'm not guaranteeing success, because nobody's guaranteed success, but if you just give up on self control and discipline you're guaranteeing failure.
The difference is my hypothetical is a realistic one many people face. Yours is just pure fantasy with no connection to reality.
Yes personal motivation and attitude to succeed are large factors, ones we should encourage, but the empirical evidence heavily suggest your personal circumstances and level of support are equally as important, if not more so.
I'm a little tired of people with multiple advantges largely ignoring them in favor of the "I'm so great and awesome and all you need to do is be like me" mentality.
"It's easy to be judgmental. What would you have done if you didn't have parents to mooch off of for a year? What if you had a family to support?"
The thing is, If I have a family, it means I'm already making enough to support them. This is the self-control and discipline I was talking about. Too many people decide to have kids and don't do anything to prepare (IE: save money, etc).
If I didn't have family, I would still be fine. I would have gotten a cheap apartment and paid it off in two years.
"But the truth is like many judgmental types, you had considerable practical/emotional support as well."
Really? I didn't know "judgmental types" and "practical/emotional support" went hand-in-hand.
This is why unsuccessful people stay unsuccessful. They pass good advice off as "judgmental".
Part of the problem is that when you're in debt, you get stressed, and when you're stressed, you tend to get tunnel vision and not see all of the possible alternatives. But the alternatives are out there. There are immigrant families that come here with nothing, sleep on sacks of rice in the back room of their workplace. There's the approach in the story above of going homeless and showering in the gym. There's roommates. You can live out of your car, if you have one.
I could post a heck of a lot more about my life, but I dont need the pity.
I was laid off, and am receiving unemployment. I hate that, cause I do like working. I do have funds guaranteed to go back to school in the fall due to my injury. I do some IT consulting on the side, but business has been slow recently. Also unemployment is 11% in my area, with a glut of HS and university students chewing up what little this area offers.
I put out about 10-20 resumes a day to a 50 mile radius, and have only had back 4 legit replies, with 30 spammy-fake offers of selling insurance and other affiliate scams.
I will have garnishment applied to me, due to flat out not being able to pay when I do get a job. Fortunately, garnishment does not apply to unemployment in IN, only passed last July.
I am now applying as a volunteer to the local United Way to get more experience and as valuable sources for my resume.
So, yes. I am making something of it. But the situation sucks.
OT: A blog peeve of mine is when you read a blog and want to visit the home page but can't find the link. Out of years of systematic reflex, I clicked the logo in the upper left, only to get the blog home. After a little link hovering I discovered the "try it out" button goes to the home page, but to me that means sign up, not read more about it. If you're going to use your blog for marketing, make it really easy for visitors to visit the home page. Don't make me think!
They have a chart showing how people get out of debt, and the chart seriously does not include the option "pay your damn bills?"
I'm reminded of statistics saying that the average wedding costs $28k or whatever. The reality turns out to be something like "among weddings arranged by a professional wedding planner, the average cost is 28k".
I hope they aren't putting together a funding pitch equating the "1/3 of American's have credit card debt" with "1/3 of Americans have enough debt that they need outside help managing it" as this chart implies.
I've been in a situation where life sucked and racked up some debt and fouled up my credit, so I can sympathize to some extent, but what I thought was pretty bad debt (including student loans) was less than that 'average' wedding figure.
After spending a year or two putting all my extra income toward successfully retiring the debt, my future wife and I looked at engagement rings and weddings and thought, "this is crazy." She has no engagement ring (wedding band though) and we eloped, and we're just as married as my brother and he spent $30k.
I have a friend whose parents offered to give them money for a down payment or to pay for their wedding. They chose wedding.
What the hell people? It's one day. The wedding madness is just nuts. "Hey, we might want to buy a house and have kids soon. Let's spend all of that money we might need entertaining a gaggle of family and friends, half of whom each one of us doesn't particularly like."
So my question is what about people that aren't in debt, but need help improving their credit score? I had a lot of debt from about 5-10 years ago and it killed my credit score. The debt has all been paid off for a few years, I haven't had credit cards in years, and I still have a few notices from closed accounts that won't fall off for a few years.
So I'm currently doing what I can to remove the closed notices and have had some minor success. But a lot of people don't know the right things to do to improve their scores.
Having a service that tracks the 3 credit bureaus and provides guidance on steps to take to bring your score up would be mighty useful.
Go to your bank and ask about a secured loan. Basically, you put money in a CD and get 2% or whatever. The CD sits at the bank. You then get a loan for the same amount as the CD at 3% or so.
They've got your money in the bank, so it's no risk for them. You put the loan on auto-pay, you lose 1% per year to do this, but you get 12 of these kinds of transaction credits on your account which is good because they count differently than credit card.
I did it with $1100 and it cost me $10 or $15 or whatever, but I went from not eligible for a credit card with a limit over $250 to getting an uncapped charge card with good rewards in 12 months, which was very helpful in business. I don't know about getting the bad transactions off, but getting good ones on is important too. I don't know what the lowest amount you can do it with is, but I did it with two loans: one $1000 and one $100, and it worked well.
That raises flags for me, because as far as I know from what I've read, some of the key components of your credit score are 1. length of credit history (i.e. if the average age of your open credit lines is 0, then that's bad) and 2. credit limit (if you have no credit cards, you have no credit.
Certainly having no debt helps, but many of the other things hurt more than they help.
Once you hit the 7 year mark those late payments fall off your record. Just keeping your current bills paid on time is probably the best thing you can do if you already have several years without any problems.
I fell onto some hard times about ten years ago. Eventually I was able to pay the debt off but my credit was in the toilet for years. I went from a credit score of 530 to 600 and then it just sat there...and sat there..and sat there for a few years until the magic date passed where crap fell off and it jumped to 750.
The other lines of credit people are mentioning might be helpful, but in my case I just had to be patient. If I can manage to never take out a loan again in my life (it's been ~10 years) I'd love that. Debt sucks.
In the context of getting out of debt: Is anyone a Dave Ramsey listener here? I've been an avid listener for a few years now. I recommend his podcast to everyone -- not only for the financial advice, but also for the cultural education about what America really is.
my mother listens to him a lot, so i've heard him quite a lot. his advice is good, of course, but i find it interesting that every program is the same thing over and over, like its a reaffirmation mantra that people need to hear in order to successfully not spend the money they don't have, or how to deal with it when they forget they're not supposed to.
I like his debt snowball approach. I don't have a debt problem (and plan to never have, but crises happen). The way I understand it, you pay off your smallest debt by whatever means necessary, make minimum payments on everything else. Then you take what you were paying on that debt, and apply it to the next. Over time you are eliminating debt and applying all the money you spent on the eliminated debt towards the next debt. So you start paying off faster as you go. At least that's how I think the plan works.
The fastest way to pay off debt is to pay off the highest interest rate debt first, then the next highest interest rate debt, then the next highest interest rate debt, etc.
The debt snowball approach isn't the fastest approach, but the theory is that it has a strong psychological impact: By paying off your smallest debts first, you see forward progress more clearly, which motivates and energizes you to keep going.
Another good psychological trick is to have only one credit card. Then, when you get the bill each month, you can clearly see how much you've spent. The single big statement is scarier than having lots of little statements, and leads people to spend less money unnecessarily.
Don't most of them just pay it off? Sure takes a long time, but eventually don't most people pay what they owe?
BTW, there are only about 1.5Million bankruptcies in the US every year ... that's <1% of borrowers. So I wouldn't use it as the first kind of "traditional option".
You are absolutely right that there were about 1.5M bankruptcy filings
last year [this number is growing (1)]. Note that we haven't
made any claims about the ordering on the graphic, but bankruptcy is
an option which is often under-considered, because people are scared
of it, and driven by FUD to pursue other options which often
have lower success rates.
Rod and I have learned a tremendous amount about debt since founding
this company. We have heard every possible misconception from people
who are not in debt, such as
- "people don't care about paying debt off as much as weight loss because it's not visible"
- "only dumb people get in debt"
- "people should just stop shopping and pay off their cards"
The list goes on. What we have learned from speaking with dozens (now probably hundreds) is that there is no "typical"
debtor. People that have reached out to us vary in age, sex, location,
education level, stress level, income, employment, height, weight,
hacker cred, skin color, and so on. The number of people in this
situation in the US number in the millions. The statement "Don't most of them
just pay it off" trivializes situational problems which are extremely
diverse and complex. And "take a long time" it does - people that are either not
financially educated or unable to pay off their debt can live in a
steady state of repayment, paying a perpetual existence tax to
banks. This should not be the state of the world!
If the debtor pool varies as widely as you claim, that reinforces something I've been wondering for a while:
Is it true that Americans are in debt because they are fiscally irresponsible, or is it because the playing field is tilted?
It is hard for me to believe that 33% of all Americans can't grasp the idea of "spend less than you make". Sure, a lot of it is consumer culture / media pressure, etc. But other countries have the same sort of culture and lack our level of credit card debt. Could it be that the field is tilted -- e.g. wages are simply at a level that does not allow the average person to save much even if they try, meaning that as soon as they hit a financial bump (job loss, non-insured surgery, car repair) they are in debt and the interest rates on the card spiral?
This is not a conspiracy theory -- I don't think there is a literal collection of people in a room saying "how do we stick it to them this week?" -- but I do think that many economic actors (credit card companies, credit bureaus, major retail stores, etc) act in their own self-interest to continue this situation.
I've seen bits and pieces that support this theory, but I lack the economic and political background to tell if this is right or not. Can anyone point me at good sources?
One interesting tidbit: the most popular support request we've received since launching is to make the service available in the US and Canada.
One natural reason that this situation has gotten worse is that the credit card market has become completely saturated (everyone who wants a card has one [almost]). This, combined with relatively easy credit recently has resulted in the card companies marketing to people that they would previously had stayed away from.
We've learned that people often become accustomed to credit at an early point in their lives (college), rely on it for awhile, then don't suffer any explicit repercussions, and so grow accustomed to it until the problem grows and it's too late.
I don't really think it's a 'conspiracy' either, since it's clear what the motivations for all of the involved parties are.
Would love to chat about this more, but I need to tend to the serverz :)
But other countries have the same sort of culture and lack our level of credit card debt. Could it be that the field is tilted -- e.g. wages are simply at a level that does not allow the average person to save much even if they try,...
Most other countries have considerably lower wages (PPP-adjusted, not nominal) than we do.
If an average American reduced his consumption to the same level as a profligate Swede of average income (i.e., one who spends his entire paycheck every month), he would be saving about $15k/year.
The average American is a mirage. Replace that by the median American, and it's immediately down to $7k. Then notice that this "excludes most non-cash income(e.g., like employer contributions to social insurances, or the value of government provided health care and education)" and we can argue whether, after paying for health insurance and retirement/kids college savings, the median American really is better off.
This attempts to include the value of assorted government benefits (health care, education, etc), ignores deadweight losses (e.g., $1 in govt costs providing only $0.90 in benefits), and ignores the value of employer provided insurance (all of which favor Sweden).
Americans are still considerably richer (though the bottom of Sweden is better off than the bottom of the US). The gap gets even bigger if you restrict the comparison to Americans of Swedish descent.
It's kind of misleading to say that it's "only" 1% of borrowers file, because the scope of time is focused on one year, but not only do borrowers have a much larger average lifetime, but the impacts of bankruptcy last 10 years. If we say that the borrower pool stays fairly static over a 10 year period, that means really you're talking about AT LEAST 15% of borrowers are filing bankruptcy.
The way I read it, the two facts are redundant, they mean that virtually everybody with credit card debt carries a balance from month to month. That's tautologically true.
I would guess that more than 1/3 of Americans have a credit. card account (not necessarily debt).
The most recent Survey of Consumer Payment Choice estimates that there are 178M card holders. The 2009 Survey of Consumer Finances (2) estimates that percentage of card holders of "bank-type" (eg: not Macy's) cards that revolve balances is just under 50%. With store cards, this number is right around 100M.
1/3 of Americans carry a balance from month to month (revolving) = ~100 million people; sorry layout is confusing but this is in fact correct. Of course, more than 100MM actually have at least one credit card but not all of them carry balances.
Simply put, way more than 100MM people have credit cards, only ~100MM or 1/3rd carry balances from month to month.
Is their business model subscription based or recommendation (like Mint) based? I don't know if I would trust anything from a company like this if I was already in debt. Usually people already feel screwed over. They should really work on PR and branding so people feel like they can trust then.
As a datapoint, since the public launch a few days ago we are already helping people track over $35M in credit card debts. We believe trust is earned not paid for.
I got my RFZ invite code the other day and took the 10 minutes it required to get my credit cards in the system and play with its tools.
I found it to be SO much simpler than Mint, which I've just ignored for more than a year now.
With RFZ, I can quickly see that if I stopped using my cards and paid X per month for 3 years, I'm out of debt and am only paying about 15% more over what I owe. Thats not so bad when you consider the alternatives.
Now, I think I underestimated what I can afford to pay, so hopefully I look at my bank account one day and see there's a few extra thousand that I don't need to save and can immediately put that on a card. Feels like I'll be better off much sooner than 3 years.
Mint can do this, I know, but again — the simplicity of the experience of RFZ is top notch.
Ditto. I got my invite the other day. I like that it is one place focused on getting my debt down. I paid what felt like a bunch of money the other day, but on RFZ it's clear that it was a drop in the bucket of what I owe in total...
I second that. RFZ is top notch.
Edit: this thread reminded me to check if a trade cleared. Just paid another $800 towards credit card zero. Woot!
I don't have much CC debt right now, at all. What I do have is Student Debt, and bags of it.
I've rummaged through the relevant federal repayment and waiver options, and I don't see any efficient ways for a software engineer to deal with the debt except "push as much money at it as fast as possible". Loan management options seem to extend debt payments out to about 30-40 years, which generates some eye-hurtingly huge interest payments over time. (think 1.5x the original loan amount).
One of the nasty little twists in federal student loans is that bankruptcy won't affect them. They do have various deferment plans, but those can keep the interest ticking along, which can be harsh if loans are large.
So: my question is: does readyforzero.com have any plans to work on student loan debt in the future?
Wondering how many people use the consolidators who promise to manage down your debt by acting as midddlemen between you and collectors? What advantages (if any) does Ready for Zero offer over this method?
It took me 11 years to pay off 2 credit cards, and I'm still petrified to go into CC debt again. Will Ready for Zero also eventually offer planning tools for saving up for a big ticket item like a new MacBook Air so that I don't have to pull out a CC to purchase it?
Today, RFZ is a do it yourself type of tool. So it is a different option altogether than debt consolidation but we did recently announce a partnership with Lending Club that allows us to consolidate people's high interest debts when and if it makes sense (not always the best option).
Planning tools are definitely in the works. We do help you understand the 'true cost' of items purchased on your credit cards; the interest and fees can be sneaky.
I love this idea, but I've been getting "We're sorry, our server is under heavy load. Please try again." during the verify phase for the last few days.
Thanks for checking us out - I'm really sorry about that. We are dealing with issues with some of our backend service providers. One of the difficulties of a financial site such as this is that the data which comes back is not very well normalized nor homogeneous, and we are seeing issues and response types which we have never seen before. Please send an email to support@readyforzero.com and we will track your issue. Thanks guys!
I wonder how many people that declare bankruptcy own a big flat screen TV with a DirectTV subscription with at least one premium package (Showtime, HBO, etc)?
as long as there is money in society there always will be dept.
if consumers pay off all their dept on credit cards.
if homeowners pay off all their mortgage dept for property.
if all small businesses pay off their dept.
if all institutions pay off their dept.
if all banks pay off their dept to investors, foundations, etc.
if all states pay off their dept to banks, IMF and other organizations.
in other words, if every single individual or organization pays of their dept there wont be a single dollar bill in circulation which means an end to our current system, which is something most people do not want to happen (no matter how broken and inefficient it is)
I swear, it's as if people have never seen money before.