
How Americans Get Out of Credit Card Debt - innovate
http://blog.readyforzero.com/2011/02/04/how-americans-get-out-of-credit-card-debt/
======
StavrosK
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.

~~~
lutorm
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.

~~~
nostrademons
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.

~~~
updog
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.

Now you have two problems.

~~~
Qz
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.

~~~
Helianthus16
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.

~~~
Qz
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.

------
thompo
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.

~~~
TheAmazingIdiot
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.

~~~
thompo
'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.

Oh.... and just work harder.

~~~
rick888
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.

~~~
Cadsby
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.

~~~
jerf
"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.

~~~
Cadsby
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.

------
nhebb
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!

------
kevinpet
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.

~~~
arghnoname
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."

------
geuis
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.

~~~
lionhearted
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.

~~~
geuis
I've also heard this before but wasn't sure about the details. Thanks for
stating this.

------
kirpekar
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.

~~~
ams6110
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.

~~~
Teckla
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.

------
kirpekar
"How Americans get out of credit card debt."

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".

~~~
rbranson
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.

~~~
Retric
Many people also die with debt. I suspect less than 50% of people ever get
back to zero after gaining significant amounts of debt.

------
BlazingFrog
The infographic reads that 1/3 of Americans have credit card debt and further
below that over 100 MM Americans carry a balance from month to month.

1\. Isn't carrying a balance from month to month the definition of "credit
card debt"?

2\. As of July 2009, the US population is about 307 million people.

That would mean that virtually everybody with a credit card carries a balance
from month to month. That's simply not true.

~~~
lurker17
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).

------
meterplech
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.

~~~
innovate
Check out our FAQs and Privacy Policy, we try to address this and other issues
there: <https://www.readyforzero.com/overview/faqs>
<https://www.readyforzero.com/overview/privacy>

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.

~~~
meterplech
Nice- I should've looked. And, I appreciate the idea behind earned trust. Best
of luck!

------
efields
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.

~~~
sudonim
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!

------
pnathan
Hi,

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?

------
contagionhealth
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?

~~~
scottkrager
Try something like: <http://www.smartypig.com> (online savings accounts goal
oriented) or <http://www.mint.com> (nice goals feature)

------
jarin
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.

~~~
ithayer
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!

~~~
jarin
Sent! Let me know if I can help in any way.

------
iamchmod
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)?

------
elvirs
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)

