Why ReadyForZero (YC S10) Started A Company to Eliminate Credit Card Debt
blog.readyforzero.com
blog.readyforzero.com
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.
This is generally the point where the bank or the health insurance industry gets blamed for your predicament, sadly.
On the plus side, I know of some people who clawed their way out of six figure consumer credit holes. It takes strong will, for years.
Shouldn't the banks get some of the blame? They make it so easy to get the credit, it should be no surprise that some people will over do it.
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.
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.
1. The less dominant personality emulates the dominant personality. 2. People that spend a lot of time together form similar habits and interests. Ever noticed how many guys in corporate america like the same thing? 3. People that spend a lot of time together engage in common consumption. For example, one person with bad eating habits will cause others to gain weight.
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. :)
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.....
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.
This strikes me as a very first world kind of problem (assuming the meal is still edible). See also: http://www.theonion.com/articles/i-am-so-starving-vs-i-am-so...
...
...anybody want to start an auto-recipe-cooking-machine startup with me?
Cooking meals is a non-trivial skill, many people don't have the time or money to learn
Saving money over eating out all the time is easy. Canned food and spaghetti are trivial. Most veggies are fine totally raw. Rice and veggies can be done brainlessly with a rice cooker. A George Forman grill and a giant bag of frozen boneless skinless chicken thighs is cheap, healthy protein.
Being able to cook creative homecooked meals is hard, sure. Cheap foolproof meals are easy, though.
they can't afford to "experiment" with cooking, because if their children don't want to eat what they make when experimenting then the children are going to go hungry.
Kids get to refuse eating what they're served? News to me. I was sixteen years old before I was able to get away with refusing broccoli and brussels sprouts. I was a pretty disobedient kid, too. So I don't really understand this argument. Some parents are so spineless they'll cave in to a kid's choice of meal?
Cable TV is often the primary form of entertainment, and is much cheaper than going out or the most popular form of "free" entertainment, unprotected sex.
Unfortunately this is a major cultural problem. Fortunately, almost every other consumer startup is solving this. The internet contains Facebook and YouTube for free, and Netflix for far, far cheaper.
Cigarettes...are addictive, though. One of the most addictive drugs ever. I have no argument with you on that point.
Cooking is easy. Saying it's hard it just an excuse. Get some meat, frozen veggies and potatoes/rice/bread and you can easily make a basic meal in 30 minutes. And really, you're talking about the kids going hungry when food is on the table? Growing up I learned quickly to eat what my mom cooked or 'go hungry.'
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.
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?
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.
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.
Following your analogy, the majority of people are probably better off financially by not going to Vegas at all.
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.
Still, it's a lot easier to remember to pay a bill on time every month than it is to play optimal-strategy blackjack for hours with no mistakes.
The analogy holds, but it's not all that good an analogy since there's a severe difference in the difficulty and the risk/reward ratio. Some things are better explained in their own terms than via an analogy.
The 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.
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?
Not everyone with massive credit debt was out there buying iPods and flatscreen TVs. The root cause (no savings) is a different story.
Every excuse for why people end up in debt is moot if you realize that almost every single one of those people could have had a positive cash savings had they only planned better, and not NEEDED debt.... they used it because they could.
Fridge, roof, etc. seem somewhat more self-inflicted.
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).
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.
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.
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...
New laws and higher minimums are working to alleviate this problem, but if you can't make the minimum as it is, how will you do it when the minimum has doubled?
Having a momentary catastrophic expense like that might require putting money on a credit card and not paying it off immediately. In the long run, though, that shouldn't cause systemic credit card debt because, just as you should have money to save at the end of the month, you should have money to pay down your emergency debts at the end of the month.
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.
"Empowers them"?? When Obama said to Jon Stewart that Larry Summers had done "a heck of a job" fixing the economy, Jon laughed and responded: "dude, you don't want to use that phrase". (Obama then said "pun intended", but still).
Same here. If you're going after credit card companies and big corporations, please don't try to "empower" anyone, because by now people have learned what it's like to be "empowered" (hint: it hurts).
Also:
- most of their data seems to be from 2006 -- that was a long time ago
- many problems listed, not many solutions
- it seems highly improbable that people are drowning in debt because they don't know better; people have debts because they can, because they enjoy it -- they enjoy the goods the debts help buy, and the debt, they forget about it.
On 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.
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).
If there were more details explaining the process, I think more cautious people (like me) would be willing to try it.
The incentives for stuff apart from energy efficencies may be different, though.
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?
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.
I believe there is space for both.
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 :).
http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-...
Seriously though (on second thought, that was pretty serious), about 5 or 6 years ago this offline app helped us become completely debt-free (and saved us a bundle on interest fees in the process):
http://www.zilchworks.com/zilchstandard.html
If ReadyForZero offers users similar functionality and the pricing is fair, it will more than pay for itself.