
Why ReadyForZero (YC S10) Started A Company to Eliminate Credit Card Debt - ryanmickle
http://blog.readyforzero.com/2010/10/28/why-we-started-a-company-to-help-people-payoff-credit-card-debt/
======
patio11
Good luck and godspeed. I spent a couple years on the Motley Fool forums
giving out advice to people for credit card issues. (I have quirky hobbies,
what can I say.) Many of them would have benefited from something which
automatically addressed their poor organizational skills. (And, sadly, many of
them are far beyond the point where any amount of technology will solve their
problem. If you're committed to living a $5,000 a month lifestyle on a $4,000
a month income... no, the evil credit card company charging you $500 minimum
payments is _not_ your problem.)

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

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

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

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

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

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

------
amalcon
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.

~~~
ithayer
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.

~~~
amalcon
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.

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

~~~
ig1
Collary: You should find a cofounder who's more attractive than you.

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

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

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

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

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

~~~
charliepark
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.

~~~
steveklabnik
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.

~~~
Dbug
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.....

~~~
ig1
>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.

~~~
AndyKelley
I think you overestimate how difficult following a recipe is. It pretty much
just tells you _exactly_ what to do. A machine could do it.

...

...anybody want to start an auto-recipe-cooking-machine startup with me?

~~~
ph0rque
One of my startup ideas is a robotic kitchen, similar to
<http://www.gizmag.com/go/1865/picture/2207/> except with a robotic arm in the
middle.

------
jollyjerry
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.

~~~
btmorex
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?

~~~
jimbokun
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.

~~~
btmorex
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.

~~~
philwelch
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.

~~~
jimbokun
"If you're smart, sometimes you can beat them at their game."

Following your analogy, the majority of people are probably better off
financially by not going to Vegas at all.

~~~
hugh3
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.

~~~
philwelch
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.

~~~
hugh3
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.

~~~
philwelch
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.

------
hardtke
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.

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

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

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

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

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

Thanks for the comment.

------
s3graham
This blows me away: [http://www.sfgate.com/cgi-
bin/article.cgi?f=/g/a/2010/10/27/...](http://www.sfgate.com/cgi-
bin/article.cgi?f=/g/a/2010/10/27/investopedia47863.DTL) "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?

~~~
joezydeco
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.

~~~
hugh3
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).

~~~
joezydeco
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.

~~~
ryanwaggoner
_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.

~~~
shiftpgdn
Are you sure? I've got a card with a very, very high balance and with minimum
payments the balance due goes up every month by about $100.

~~~
ryanwaggoner
Are you using it? :)

Seriously, I'm sure it depends on what country you're in, whether you're
racking up late fees, etc., but I'm pretty sure that it's required in the US:

<http://creditshout.com/credit-card-minimum-payments/>
[http://www.fdic.gov/news/news/financial/2003/FIL0302a.html#h...](http://www.fdic.gov/news/news/financial/2003/FIL0302a.html#h6)

~~~
shiftpgdn
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.

~~~
ryanwaggoner
You should think about reporting them (maybe FTC and/or FDIC?) and also
transferring your balance to another card.

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

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

------
minalecs
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.

~~~
innovate
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.

~~~
minalecs
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.

------
bambax
_ReadyForZero connects with people and empowers them with the right
information_...

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

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

Also:

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

\- many problems listed, not many solutions

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

~~~
natep
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.

~~~
bambax
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).

------
jim_h
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.

~~~
innovate
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.

------
hariis
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>

~~~
innovate
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.

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

~~~
eru
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.

------
bkj123
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?

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

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

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

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

~~~
alain94040
And vice versa.

I believe there is space for both.

------
LaPingvino
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 :).

------
weredebtfree
It's pretty straightforward, actually:

[http://www.hulu.com/watch/1389/saturday-night-live-dont-
buy-...](http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff)

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

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

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

------
spenrose
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?

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

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

------
satishf
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.

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

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

------
heresy
Right idea at the right time.

------
look_lookatme
Great idea. Good luck guys.

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

