Comment by timr | Hacker News Reader

Comment by timr | Hacker News Reader

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Boy...I was ready to vote up this comment, but then I hit the part about not worrying about the $30k in credit-card debt. Instant down arrow. Absolutely TERRIBLE advice.

Whatever you do, you really must pay down the debt. Minimum payments aren't going to cut it -- this is revolving debt that you're talking about, and if you don't make more than the minimum payments, it's only going to get worse. People routinely go bankrupt by ignoring their credit cards.

Moreover, so long as you're paying tens of percent interest on your debt (as with most credit-card interest rates), every other investment that you make has to return more than your interest payments for the investment to be worthwhile. If you view a business as an investment -- just like a stock or bond -- then it makes no sense to start one while indebted unless you're sure that the return will exceed he cost of the debt. Otherwise, you're just taking careless risks with your finances, in the name of a more adventurous lifestyle.

Living frugally, you can easily pay down $30k in a few years at any decent job. Negotiate with your lenders, get the interest rate as low as you can, liquidate the corporate assets, and get rid of the debt. Starting a company is hard enough -- don't saddle yourself with the additional burden of serious personal debt before you begin.

I did that. I got a contracting job making $50/hour, worked for a year, grossed $100K ($50 an hour times 40 hours a week times 50 weeks in a year), paid off my $40K debt, paid $40K in taxes, and lived off of the remaining $20K.

So I want to be clear what my advice is... if you still think it's terrible advice, that's fine, as long as I'm not being confusing as to what I'm trying to say.

If I found myself in patryn20's shoes, or in my own shoes again, I personally would pay off the credit card debt before doing anything to upgrade my lifestyle. I'd stay bumming with my parents and friends, or, if that was starting to impact my productivity, get a really cheap apartment. No luxuries until the debt was paid off.

However, I wouldn't now make paying off the debt the very first priority. If I found myself in the same shoes again, I would not now stay in a contracting job just to get rid of the debt.

Absolutely I would want to see the debt going down. However I understand now the reason that is important is because it means that I'm now paying attention to the financial signals in my life.

The debt itself is only 30K, and if I paid even 30% interest on that, that's only 9K a year. That's not going to kill me.

What's important is the mindset, the understanding, that I'm now going to steer my business and my personal finances in the correct direction, and that I'm going to listen to the financial signals in my life instead of papering over them with debt. Get that right, and it won't matter if I end up paying off the debt in three months or two years.

For decision making purposes (such as, suppose patryn20 wants to start another business, should he do it or not?), I claim what's important is the time derivative of his net worth. Does the proposed business put him further into debt, making the derivative of his net worth negative? Then I would say, no, don't do it. If it is going to make money, leading to raising his net worth, and he wants to start a business, he's fired up about starting a business, he's excited by starting a business, go for it. I wouldn't base the decision on the net worth itself, I wouldn't say "don't go into business while your net worth is negative".

I wouldn't necessarily give the same advice to anyone. If someone had 30K of consumer debt from overspending, I'd be concerned at their successful ability to manage their business finances when they can't manage their personal finances. For such a person I probably would recommend getting a job and getting their personal finances under control (paying off the debt), before getting into a business. However patryn20 has a track record of a successful business, just in my opinion over leveraged, and right at the moment he reeling from a pretty hard blow. So my advice for him is different than it would be for a hypothetical person who was in 30K of credit card debt for a different reason.

I think it's great to have that kind of mindset. As I said, I thought the rest of your advice was great -- I just happen to vehemently disagree with the notion that you can let revolving debt ride while you pursue high-risk investments (i.e. starting a business).

Even if you're "only" paying $9k a year in credit-card interest, that's still $9k that could be invested directly into your future. And if you truly believe in your business, then why wouldn't you want to invest everything into it? Is it worth starting a business two years earlier, only to have $9k less per year to funnel into your dream?

More practically, you need every last dollar that you've saved to start a business. Few entrepreneurs can afford that extra $9k a year, and I doubt that you'll meet many successful business owners who will tell you that they couldn't have used additional capital. It really doesn't make much sense to invest in a business when you're saddled with consumer debt.

I just happen to vehemently disagree with the notion that you can let revolving debt ride while you pursue high-risk investments

Starting a business is not a high-risk investment (unless you put your own money into it)

And if you truly believe in your business, then why wouldn't you want to invest everything into it?

Because, excuse me for saying so, that would be silly. Think about my business separately from me for a moment. If the business needs money, the best place to get it is from people who have money, not from me who has little.

This reminds me of a JWZ quote: "Linux is only free if your time is worthless." The same principle applies here.

A business is exceptionally high-risk, if you value your time at more than zero. It's not like a savings account, where you put your money in, ignore it, and you're guaranteed to get it back someday. It's not even like a stock or a bond, where you have a framework to evaluate your investment, and can make prudent choices with a little bit of effort. When you start a business, you're investing your time -- your future earning potential -- into a vehicle that has a poor history of return, and no framework for evaluating the odds. That's as risky as it gets.

This point plays into your second comment: sure, it makes sense to get as much of your funding from outside investors as you can get on favorable terms, but it's naive to think that outside investors are going to save you from investing in your own company. Investors don't want to take the risk unless you have some skin in the game, and founders don't want to relinquish control before they need to do so. Thus, in reality, founders end up investing in their companies heavily. They're already committing their most valuable possession (time); it makes sense to double-down with money, too.

Have you read Founders at Work?

Yes.

Well, I think there's different kinds of risk, and mathematically from a financial point of view they may look the same, but it's not the whole story.

For example, suppose I want to take a year off and go hiking. I could have worked that year instead, made 100K, invested that in the stock market, and be a multimillionaire by the time I retire. So from a financial point of view, going hiking is a really terrible idea.

Or, suppose, I feel like taking that year and doing a startup. And suppose I have a 90% chance of failure. OK, you can run the numbers, and probably show that, on average, I'll do worse than if I took a job for a year. So, yes, looking at it that way, you can say that my starting a business is an "exceptionally high risk".

Except... what if I'm working on a project that I feel like working on?

A part of the interview with Steve Wozniak that I found quite fascinating was that he said he didn't feel like he was taking a risk with Apple. Sure, he could have worked all those extra nights and weekends and had it come out to nothing. Yikes! Invest all those hours, that he could have been working to make money, and end up with zero. But so what? He was doing something he wanted to do, that he found really exciting, building one of the first computers that people could own themselves.

Is there a danger that one will become overly caught up in a startup, and do foolish things? Sure. I been there. I've done that. If I had found the right mentor they could have advised me to bail on my startup a year and half before I did, and saved me a lot of grief. Does that mean that you "have to" or that it is "realistic" that you're going to wildly over commit? No. Just because most Americans are overweight and unhealthy doesn't mean that it is "realistic" for me not to have a moderate exercise program and eat healthy food.

it makes sense to double-down with money

hmm, I've already responded to this point, as far as I can tell. I'd be happy to expound more if someone wants a more detailed explanation, but otherwise I think I'd just be repeating myself.

>Whatever you do, you really must pay down the debt. Minimum payments aren't going to cut it -- this is revolving debt that you're talking about, and if you don't make more than the minimum payments, it's only going to get worse.

If you stop using the card, you will slowly pay down the debt by making minimum payments. You will end up paying a lot more in interest than you would if you paid it down faster, but it won't spiral out of control.

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