Here's a little plan I came up with for someone, not quite 100% applicable but it worked pretty good:
(1) cut up your cards
Tough ? Yes, absolutely, very tough. But step one of getting out of a hole is to stop digging, so stop spending money that you don't have.
(2) cancel: cable, newspapers, any and all subscriptions, internet and cell phone included if you don't need them for your job. If you do need internet see if you can make a deal with a neighbour, especially easy if you have a laptop with wifi.
These are not essentials in your life, you can do without them until you can afford them.
(3) stop smoking, stop drinking
Besides making you unhealthy this stuff is habit forming and costs you a bundle, even if you don't really notice because it's only a few bucks at the time.
(4) if you've bought stuff that you don't actually need, sell it. Liquidate it, set a price on what you realistically think it is worth and try to raise that money by selling it for cash.
(5) stop eating and drinking outdoors. Restaurants and coffee shops make a profit, that means that you can cook for yourself and make your own beverages cheaper. Sure, it may not be that luxury latte that you've come to depend on but it adds up.
(6) pursue ways in which you can earn more than you do today (this can be hard, it did not work out for my friend, maybe you have more luck)
(7) list each and every expense you make, look at the list at the end of the week and be critical, could you have saved on any of them? If you could do not repeat that spending in the next week!
All these steps together should give you a bit of money on a repetitive basis that should go towards paying off your debt.
That's cumulative, any money that you spend over and beyond the required interest payments will come back the next month as a further reduction in interest to be paid. So next month you can pay back more on the principal and so on.
Do not fall back in to old habits, be strong and look at your debt decreasing as a motivator.
--
I'm really happy that the 'readyforzero' people built this. That's one of the nicest start-ups ever to come out of YC, in terms of the 'change the world' attitude.
I don't completely agree with your 5th point. By the same argument, auto manufacturers make a profit, so don't buy a ready made car - you can make it cheaper yourself! (Maybe the part about auto manufacturers making a profit is a bit shaky these days)
Sure, going to Starbucks is not a good use of your cash if you can't afford it, but where I am some of the cheaper restaurants can give me a decent meal for around the same as if I cooked it myself. They get their ingredients cheaper than I could and they make their money from the wine that I buy to go with it.
Making a car requires a very large investment in capital that you only recoup if you make lots of cars, so buying a car from an established manufacturer is cheaper than making only one.
Making food requires less in outlay than it does to buy ready made food.
> where I am some of the cheaper restaurants can give me a decent meal for around the same as if I cooked it myself.
Ok, that's different from where I live. Here eating out would easily cost 3 to 4 times as much per person as it does to home-cook.
Also, you have to factor in the cost of transportation if you do not have a cheap restaurant nearby.
> They get their ingredients cheaper than I could and they make their money from the wine that I buy to go with it.
The restaurant slogan is 'they eat you poor, they drink you rich'.
If you factor in the time for shopping and actual cooking, eating out could start looking like a bargain. Assuming that every minute of your life you are earning money, I guess :-)
I haven't read "never eat alone", but suppose every occasion of eating out could be turned into an interesting meeting, it would be even more worthwhile.
You skipped over the biggest one for most young people with a good job. Get a roommate!
I got a roommate which saves me 600$ a month and I should be out of high interest debt within 9 months. (Still going to owe 6k @ 4.9% and 9k @ 2.9% but there is little point in paying those off early.)
Edit: Also if you keep one high balance CC you can reduce the amount of savings you need to keep liquid in case of emergency. AKA 2k in your checking account is a great idea, unless your also paying 12% interest on credit card debt.
we're actually letting people through to register as well but have throttled initial registrations so many will get an invite page. thanks for the support and feedback.
Probably a silly question, but how do you intend to monetize this? Getting people out of debt is a great goal, but that means it's going to be pretty hard to charge them for the use of your tools (it would defeat the purpose).
we've explored a variety of options but we would ultimately like to empower consumers to prove their creditworthiness in order to access better financial products, credit information and reporting is one avenue we are particularly excited about in terms of monetization.
So many banks gouge people that I'm sure you'll find plenty of room for improvement and opportunity with the ones ready to access your client base with more reasonable terms. Best of luck!
How long are invites going to take? I'd love to take a look at this; my recent wedding has simply wiped me out. I'm not sure what to do, and having a better idea or what needs to be done would be a real boon.
Why would you go in to debt in order to marry? I know it's done and that is not going to undo the damage, but if you knew this was going to be the result would you do it like that again?
No, and I understand it isn't, I'm just trying to figure out how that could happen.
I see lots of people spend way too much money on their marriage (1 day...) only to be in trouble for a year or more afterwards, which, surprise, puts a huge stress on their marriage.
There is some kind of peer-pressure going on there that makes people spend way more than is smart and I'd like to understand better how that happens.
It's not thousands and thousands of dollars, it's just a bit too much to make it easy to undo on a graduate student salary.
It's small things that rack up. It's small things that don't get easily factored into budgets: flowers for the groomsmen, that case of soda you forgot, lighting for the venue.
All of the predictable stuff like catering, venue hire etc. was absorbed by our (wonderful) parents. Day to day stuff was me. Now I need to figure out what to do.
It's easy to talk about not going into debt when you have a decent job. I never had a problem when I was working. Now I'm a student on what amounts to subsistence wages in CA. That's when it gets tricky.
If you have wealthy enough parents you might suggest that you consolidate your debt with them, that at least gets you off the hook for the interest. That's the killer longer term anyway. I think that's not an unreasonable request between family members. I've done it for my mom at times and she has done it for me as well before then. Looking out for each other is better than to have everybody save and borrow from the bank, and a lot cheaper too. Assuming everybody is honorable and you keep a paper record of what gets borrowed and what's been returned to avoid confusion.
Yeah, that's the current culture here in America. I have a sister getting married Sept. 18th as a matter of fact. I had a nice talk with my soon-to-be brother-in-law, even though my parents are paying for most of the wedding. I tried to explain how financially backwards the system is, yet everyone goes along with it. The wedding industry is huge and sees its clients coming. I explained that they are currently "dinks" a marketing term which stands for dual-income-no-kids, meaning they have decent discretionary income now. But this guy wants kids soon, and my sister wants him to buy her a new SUV, and I'm trying to show them it's a great time to look at buying a house, and the financial picture over 20 years as opposed to just looking at nice-to-have things today.
Besides, aren't the main components of the wedding's cost supposed to be paid for by the bride's parents? Last I heard, the groom paid for the rings, the limos, and the honeymoon.
> (7) list each and every expense you make, look at the list at the end of the week and be critical, could you have saved on any of them? If you could do not repeat that spending in the next week!
It turns out that (7) is more than sufficient for the vast majority of people. In fact, most don't even have to look at the list - they can throw it away, unread, each night.
There's something about writing down each transaction that gets people to spend far more wisely.
FWIW, the same applies to eating as well. Want to lose weight and/or eat better? Write down everything that gets to your stomach that isn't water. (Yes, even diet soda and unsweetened tea/coffee.)
I'm all for any ideas that can help America get out of debt. It's also great to see someone step in and fill in the hole that MS Money left (it had a fantastic debt wizard/planner, I was sad when MS announced they are killing it, despite how buggy the app always was).
I do wonder if this site can really reach the market it's after. In my anecdotal experience, the people that are in massive debt don't really have the discipline or organization to get out of it, even with a great tool to help them. If they did, they probably wouldn't be in as much debt to begin with.
I do wonder if this site can really reach the market it's after.
I think this is the big question. I really love this idea, because too many people are struggling unnecessarily because they don't realise the true impact of credit card debt. Having something that clearly shows them this impact is a great idea. But I find it hard to believe they will seek something like this out, so it's going to be tricky to reach them.
I was thinking about the very problem yesterday, and wondered if it would be worthwhile requiring information like this to appear on all credit card statements. Instead of just highlighting a minimum payment, what if the statements also had to outline the impact of higher payments somehow? It could be the only reliable way to get the information to the people that could benefit most.
Something like this is required as part of the recently enacted CARD act (in the US):
"Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest." (http://www.creditcards.com/credit-card-news/help/what-the-ne...)
I'm really glad to see this. I'd say it could count as a public service as well. What I hope the site will also offer is counseling on developing better spending habits in addition to the tracking/organizing of repayments. The crowd that visits HN is probably already pretty wary of the credit card game/trap, but too many Americans get pulled underneath unmanageable debt burdens before they really know what's happening.
I had a neighbor who had simple, yet fantastic advice: if you can't afford to pay for it cash, don't buy it. This guy was your average American, with a middle class job, but during his retirement years I noticed he bought a new porsche and humongous RV. I have to wonder if he bought those cash too, but I wouldn't be surprised. He had rental property, all his debts paid off I'm pretty sure, and all because of simple yet powerful financial common sense.
It actually angers me to see some of the interest rate schemes and fees banks deliberately put in place to take advantage of unsuspecting debtors. A site like ReadyForZero is timely in the midst of the worst economic crisis since the Great Depression. If 70% of our economy is based on consumer spending, it make sense to strive to keep Americans in a position to spend comfortably.
This is one of the areas where education in the US is really horrible. This stuff isn't rocket science, but people really have no clue what it means to get a car loan or carry a balance on a credit card, or even understand mortgages. It's depressing.
An ex employee of mine had a student loan that they were sure was 'interest free'.
Right.
After looking over the documentation I found the clause they were referring to, it was 'no obligation to pay interest for the first 5 years'. The debt had increased to about 30% more than it was initially (4 years had already passed). So much for it being 'interest free'.
My oldest brother said one of the best classes he ever took was a high school course called Home Economics, or something like that. It taught students how to write and balance a check book, and prepare their tax forms among other things (he used to make side money doing taxes for people). By the time I got there the course was gone, but I think such courses should not only be commonplace, but be required, and certainly include debt and interest education.
My home ec class was worthless. We cooked and sewed, which I think is much more traditional course material for home ec. It sounds like your brother's teacher looked at the title and made up the syllabus - I've never heard of anything remotely economics-related ending up in a home economics class.
Loan sharking is illegal, but I sometimes wonder how far banks are from that... States craft laws for maximum interest rates, so the banks relocate to where they can charge the most. The highest allowed currently is 29% I think. Ridiculous. If 100% interest was allowed I don't think a single bank would exercise restraint.
Yeah, the game is totally biased in their favor. I got my parents to get their finances in better order. My dad paid off one large balance and somehow ended up with the company owing him a few cents. It did him good to call them up threatening late fees if they didn't send his refund within 30 days.
You might be able to argue that it's worth more than the ~$17k, but there's no way it's worth more than the advice, the ridiculous productivity because you have to tell everyone what you've gotten done every Tuesday, the intros to investors, etc.
yeah from outside, I have no idea about all these things. I'm sure you can't put a price on experience. I'd love to be a part of it but I guess it's not in my path :)
I've heard ex-YC'ers claim that the money is the least significant part of the whole YC process with contacts, mentoring and the guaranteed Techcrunch coverage obviously being much more useful than the $20k.
There is almost nothing there, in an industry absolutely saturated with loads of people with a lot of something. The business plan right now appears to be "a simple Google Spreadsheet with a lot of annoying maintenance and superficial value-add surrounding it".
The pie-in-the-sky fantasy land of future low interest credit card leads [which is the exact opposite of the sort of offers such a site would get. The best would be predatory, secured credit-card type offers] and automatic...something...it just has the aroma of failure. It could as easily be a "lose weight today" website where you enter your desired weight and it tells you to eat less daily. Which...if such a site existed...I think we would all laugh at.
I assume there is more to it than that. MS Money's debt planner started with you creating a budget. From there it knows about how much extra you have each month. It then takes in how much debt you have and their interest rates, and from there it plots out how much to pay each debt every month. It's encouraging because you can see the graph converging towards zero, and it also indicates how much you'll save in interest charges versus just paying the minimum (which for a lot of people is probably quite a bit). MS Money is the sole tool that got me out of a lot of debt, and it conditioned me to be responsible with my money ever since.
As for weight loss, there pretty much are sites like that. fitday.com, livestrong.com, etc. None of them are magic pills, just like ready for zero won't be. All sites like this require a user who is determined and willing to make the change. But these sites can help the person who really is looking to make that change and increase their chance at success.
For someone with a hole in their hand getting a handle on their expenses can be a first step towards actually doing something about it. I would not rule this out as a failure quite so easily.
Kinda true but credit card debt =/ 0 buying power. A lot of these folks are carrying non-zero balances but using the cards anyway. The trouble is credibly collecting payments which will almost certainly come from users' credit.
As an aside, while this demographic has less total buying power than that of responsible consumers, it's also a hell of a lot more likely to buy stuff. Possible net positive?
Here's a little plan I came up with for someone, not quite 100% applicable but it worked pretty good:
(1) cut up your cards
Tough ? Yes, absolutely, very tough. But step one of getting out of a hole is to stop digging, so stop spending money that you don't have.
(2) cancel: cable, newspapers, any and all subscriptions, internet and cell phone included if you don't need them for your job. If you do need internet see if you can make a deal with a neighbour, especially easy if you have a laptop with wifi.
These are not essentials in your life, you can do without them until you can afford them.
(3) stop smoking, stop drinking
Besides making you unhealthy this stuff is habit forming and costs you a bundle, even if you don't really notice because it's only a few bucks at the time.
(4) if you've bought stuff that you don't actually need, sell it. Liquidate it, set a price on what you realistically think it is worth and try to raise that money by selling it for cash.
(5) stop eating and drinking outdoors. Restaurants and coffee shops make a profit, that means that you can cook for yourself and make your own beverages cheaper. Sure, it may not be that luxury latte that you've come to depend on but it adds up.
(6) pursue ways in which you can earn more than you do today (this can be hard, it did not work out for my friend, maybe you have more luck)
(7) list each and every expense you make, look at the list at the end of the week and be critical, could you have saved on any of them? If you could do not repeat that spending in the next week!
All these steps together should give you a bit of money on a repetitive basis that should go towards paying off your debt.
That's cumulative, any money that you spend over and beyond the required interest payments will come back the next month as a further reduction in interest to be paid. So next month you can pay back more on the principal and so on.
Do not fall back in to old habits, be strong and look at your debt decreasing as a motivator.
--
I'm really happy that the 'readyforzero' people built this. That's one of the nicest start-ups ever to come out of YC, in terms of the 'change the world' attitude.