We recently met up with Nick in San Francisco to hear about his experience getting out of debt using ReadyForZero.
Months using ReadyForZero: 24
“In a world where all the other finance companies feel like they’re against you, it was so refreshing that ReadyForZero was on my side.”
As we continue to talk with people who are having success paying off their debt, we’ve been learning some interesting lessons. So far, these lessons include the following nuggets of wisdom: allow others to motivate you, don’t be afraid to downsize, and remember that spreadsheets alone won’t save you.
We’ve also been starting to see some undeniable trends. One of the most striking trends is that young people today are facing an unfortunate cocktail of economic factors (debt, recession, underemployment) that have clouded the traditional path to prosperity. Instead, it seems that society has created a new and more uncertain path, which goes something like this:
1. Take out student loans to pay for college
2. Since loans don’t cover all your living expenses, get a credit card
3. Graduate and then make minimum payments while trying to build your career
4. Try not to think about your debt because it’s too big and you’re too busy
It’s a scary path for many college graduates. Despite hard work and living frugally, many are not yet making enough money to pay down their debt. Only after surviving the four steps above, can they finally arrive at the last two steps below:
5. Finally achieve some measure of financial stability
6. Start actively paying down your student loan and credit card debt
And that explains why we were recently so excited to hear from Nick, who has become our very good “Twitter friend” due to his frequent and much appreciated efforts to use social media to tell his friends about ReadyForZero. As we got to know Nick, we realized it shouldn’t be a surprise that he’s wielding his influence on Twitter. After all, his social media savvy is one reason he’s now a Senior Account Executive at Text 100 Public Relations. Speaking of tweets, it just so happens one of Nick’s tweets is featured on our homepage – you’ll spot it if you look closely.
Here’s a larger verison of it:
— Nick Rovisa (@NickRovisa) January 4, 2012
After our Twitter relationship with Nick blossomed, we convinced him that it was time to take it to the next level and talk over the phone. He agreed to share his own post-graduation story (and the lessons he’s learned) with us and with you.
Nick and a friend during the month of Movember
His story began with the first step in the basic path outlined above, taking on good debt to get his college degree. “I don’t remember exactly when I got my first credit card,” he said. “I don’t spend in general – I don’t need a lot of things and I’m not very materialistic.”
But with student loans going toward the cost of his tuition and no extra money laying around to cover the cost of books and other living expenses, he had no choice but to start putting things on his credit card. “A lot of it was books. I had to put books for classes on the credit card sometimes, and clothes – just general things throughout college,” he told us.
Like many savvy consumers, he attempted to make use of a 0% interest credit card offer in order to avoid costly finance charges. “I ended up getting an AmEx that was no interest for a year. And of course, I was kind of naive. So I was thinking I was going to be able to pay it off.”
Unfortunately, like most savvy consumers, he was not able to get it paid off before the 0% introductory period expired: “That ended up not happening,” he explained. “And then a thousand turned into two thousand and two thousand turned into three thousand, and I think my highest was around $5,000 or so. It wasn’t crazy, but my plan obviously failed after that year of no interest.”
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Lesson 1: Watch out for post-college balance creep
Like mustache creep, balance creep on your credit cards can sneak up on you. After graduating from college, Nick began pursuing his career. At the same time, his student loans were coming due, and the credit card debt he’d acquired in college was not going anywhere. Which meant that he was stuck squarely between steps 3 and 4 outlined above: making minimum payments and trying not to think about the debt because it felt overwhelming.
During this whole time, he was living frugally and trying not to spend money on anything he didn’t need. Yet, as often happens for young people in entry-level jobs, even treading water (i.e. staying at the same debt level) can be a challenge.
Credit card balances have a way of creeping ever higher, and Nick found occasionally life would intervene and necessary expenses would simply add to his growing debt. Nick gave us a distinct example: “I was going to be in a wedding and we needed to book a hotel – it was a destination wedding, so we needed to book a hotel and a few airline tickets, you know, and I just had to do it.” To deal with those expenses, he told us, “I opened another card – a Citi card which was also 0% interest for a year.”
He had the same intention of paying down the card within a year, but as with his first credit card, things didn’t go as planned. “Once again, I wasn’t making much yet, so I couldn’t pay it off in a year.”
Lesson 2: You have to confront your debt to defeat it
Nick’s awesome ReadyForZero graph
Finally, after realizing that his debt number was going in the wrong direction, Nick decided it was time to get serious about becoming debt free. At the time, his career was gaining momentum and he felt that if he could just learn better strategies for consistently paying down his credit card and student loan balances, he could make it happen. He looked around for different tools, and happened to stumble across ReadyForZero. “I remember thinking the name was kind of odd. And I was like what does this even stand for? And then I read into it and I was like ‘Oh, get ready for zero debt… that’s awesome.’”
He began by confronting his debt head on, and ReadyForZero helped him do that. “For the longest time I was kind of scared to look,” he said. “It was one of those things where I was making all my payments… But I was scared to look at [the total]. I knew I wasn’t doing a good job of paying down anything. I was just kind of paying whatever.”
However, once he linked up all his accounts in ReadyForZero he could easily see not only his total debt, but also how much money he was losing to interest charges each day. This was extremely motivating – and it finally gave him the feeling that he was poised to take control of his debt rather than the other way around.
Lesson 3: Use strategy, don’t just make payments randomly
Nick told us that “a huge, huge thing that ReadyForZero taught me – which, this seems obvious now, but I didn’t think it was – is that I was paying the same amount on each card per month and I thought this was a good thing.”
Our automatic plan showed him that his best option would be to pay as much toward the card with the highest interest as possible (while paying only minimum payments on everything else). Not only would that help him get out of debt faster, but it would save him a ton of money in the long run.
While he had been thinking that equal payments to each credit card was good, the plan was able to convince him to target one account first. He told us, “I was thinking, ‘the minimum for this one is $21 but I’m paying $50, and then this other one the minimum is $48 but I’m paying $50 there – so I’m doing good. I’m paying more than the minimum on everything.
“And then with ReadyForZero… I plugged it all in and immediately the thing’s telling me that, out of the $350 that I alloted for paying debt, I should pay $290 on my AmEx. And I was like ‘what the hell? A $290 payment?’ But then it showed me and made me understand: this is why we’re doing it. Pay off the big one with the big interest rate first.”
“And it was such a ‘Duh’ moment. And I could have been doing it for so long.”
Lesson 4: Enhance your motivation
While it’s certainly important to pay attention to your total debt load, that particular number may not help you increase your desire to accomplish your goal. Instead, as Nick explained, it’s useful to focus your attention on interim milestones and daily/weekly/monthly progress. Powerful behavior changes depend upon not just calculations but also on a person’s motivations. At ReadyForZero, we try to optimize both.
We understand that humans are visual and emotional beings, which means that among other things, we need to see progress and have short term goals in order to maintain the level of commitment necessary to stick with our get-out-of-debt plans.
According to Nick, the manner in which ReadyForZero does these things has helped encourage him to stay on track. “The way the debt is displayed visually is so helpful to me – just seeing it all there and monitoring the interest rate differences, being able to change my goal (now that I am in a position where I’m earning a little more), and being able to see in real time the date when I’ll be out.”
He also appreciates the e-mails we send as congratulations for reaching specific milestones, for example, when he gets 50% of a card paid off. “Getting a little achievement [e-mail] that tells me I’m 50% of the way through my AmEx card is great,” he said. “And once that baby’s gone, it is gone for good.”
“The best part, honestly,” he says, “is when I log in and I look down at everything, I look through and then at the end when it says ‘rest easy, you’re on track.’ I just think that’s the best thing, because you look through all your [accounts], and then you get the little reassurance that everything’s going to be all right.”
Lesson 5: Don’t buy more stuff until you’re out of debt
Nick knows that despite his excellent progress so far, he would fall off track if he started spending money on things he doesn’t really need right now. That’s why he’s committed to staying disciplined about directing extra cash toward debt payments and being patient with regard to any cool tech toys that might tempt him.
“There are things I want,” he said, “and there are things I can buy right now, but I know I don’t need them. Like an iPad, or even putting something on my Best Buy card. I have 18 months of 0% interest on it, which means I could take 18 months to pay for it, maybe like 40 bucks a month and that would be easy. But then the logical side comes out and says ‘No, you don’t need it. You’re still doing these payments on all this other [debt], why don’t you get out of that first.’”
“If you will, ReadyForZero is always that voice that’s like, ‘Yeah, I know you want all this other stuff, but let’s get out of these [debts] first.’”
We’re very glad that we’ve been able to help Nick take control of his debt. And more than that, we’re grateful to him for being an All-Star Ambassador for ReadyForZero as he tells his friends, co-workers, and family about us.
Without ReadyForZero, Nick says, “I’d probably be doing the same thing I was doing. I’d probably be dividing my payments evenly – not really taking into account interest rate changes. And I know that’s what a lot of people do. They’re just kind of throwing money at it, hoping it will go away, but there’s really no plan.”
We asked Nick why he’s been so kind to go out of his way to recommend us to people he comes across who’re in debt. And he said it all started when he got some credit card lockdown stickers in the mail from us. “I received those and I also received a hand-signed letter, and it was super cool, man. It was a really nice gesture… and I was like, ‘Okay now I buy it. They’re really trying to get me out of debt.’ Which is so cool, in a world where all the other finance companies feel like they’re against you, it was so refreshing that ReadyForZero was on my side.”
We couldn’t have said it better ourselves – thanks, Nick!