Why We Started A Company to Help People Pay Off Credit Card Debt

Note: This was cross posted on the 500 Startups Blog. Special thank you to Christine Tsai for reviewing this post.

We’re technical guys. We left infrastructure startups and big search companies to accept an invitation to join Y Combinator in the spring of 2010. We were a technical team that thought we’d take on a technical problem. Less than 6 months later1 (footnotes in the style of Paul Graham) we’ve evolved into a technical team trying to hack a very non-technical problem. We’re striving to eradicate American consumer debt.

A little about us

Rod, my co-founder, started an ISP2 while he was still in high school. In the late 90′s, at 17, he was lured into the second California gold rush by former Netscape executives. Instead of following his colleagues to Google and other startups, he went back to college for a degree in Cognitive Science and Human Computer Interaction. Most recently, he was the first non-founder at Membase (the data management layer supporting Zynga), where he led their first product launch.

I worked on statistical machine translation for 6 years – first at USC, then at Google. Google was an amazing place to work, and the translate team was second to none3. But Google started maturing, as did machine translation as a field, and I decided to look for fresh challenges. Leaving Google was quite shocking both technically and socially, but I’ll leave that for another post. What I took away from Google and machine translation was an appreciation for data. More is better. More than everyone else is best.

Starting ReadyForZero

Here are the observations and beliefs that led us to start ReadyForZero:

  • Indebtedness is all around us. All around you4. We strike up conversations with old friends, new friends, people at coffee shops, online, in our office, in the supermarket, and we find all kinds of people are in debt. If you actually talk about it with people you know, you will be surprised. We’re relatively young (for now), and we have found many young people struggling – from professionals that make $300K a year to graduate students5. What do they have in common? Their debt causes them a lot of stress. According to Paul Graham, “hair on fire” problems, like debt, make for ideal startups.
  • The stigma associated with personal debt needs to be lifted, decimated, and eradicated. Over-consumption and irresponsibility are problems, but people get into debt for many different reasons. Common patterns that we’ve seen are lack of education and lack of options. Ignoring and marginalizing the problem lets finance charges fester. The credit card industry made about $75B in revenue from finance charges in 20066. Recently people have begun sharing their stories about debt, on and offline (the Huffington Post articles about debt stories and the CNBC show ‘Til Debt Do Us Part’ are great examples). Let’s keep encouraging people to be open and seek education early.
  • There can be better options for people in debt. This is not fantasy. Existing institutions and risk assessment models have not evolved to accommodate the new reality: Debt is a part of American life. College grads start their careers with average of more than $20,000 of student loan debt7. The entire credit establishment is using technology from the time of Sputnik. TechCrunch founder Michael Arrington recently couldn’t get a credit card from American Express. The industry is out of touch.

We believe that the current options are so bad, so predatory8, so unaligned with consumer interests, and so inefficient, that there is a valid, honest business in helping people get their balances back to zero. Naive? Maybe. Bold? Definitely. Unlike existing options, ReadyForZero connects with people and empowers them with the right information, personalized advice, and access to the better lending products.

What we’re doing

We’re building a product that will give people insight into their financial situation and help them get to where they want to be. We can automatically link credit card, bank account and credit report information to provide a personalized and structured plan for getting out of debt. We’re trying to improve on traditional ways of gauging your creditworthiness to give people fairer financial products. We’re forging relationships and creating information products for lenders to help them provide targeted consumer products that don’t exist today. If you want to be done with debt and are ready for zero, our goal is to give you what you need to help you conquer it.

Where we are

The financial industry is hard to break into, and we’re still learning about the space. Information is hard to come by. But through sheer tenacity, we’ve made unbelievable ‘Hail Mary’ connections with the Right People to make some awesome deals happen9. We’re aggressively building product and have recruited some old friends to help us out with marketing and design. We have larger-than-life advisors on board and incredibly connected investors that _hustle_. We are excited about the future.

  1. 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. Note that I didn’t follow his advice to maintain an exercise schedule. []
  2. The old-fashioned way, with a screwdriver and a line tester, instead of with AWS credentials. []
  3. Really. Google’s results ranked 1st in the yearly NIST competitions every year they’ve participated: http://www.itl.nist.gov/iad/mig//tests/mt/2006/doc/mt06eval_official_results.html []
  4. 1/3 Americans don’t pay off their credit card balances every month. This is almost 100 million people. Think about how mad you are when there are 10 people in front of you in the post office line. This is like 10 million of those. That’s how mad we are at debt. []
  5. The average outstanding balance on graduate student credit cards is $8,612 in 2006 (median is $3,874) and only 20% pay off their cards in full. From “Graduate Students and Credit Cards in 2006: An Analysis of Usage Rates and Trends”, Nellie Mae. []
  6. www.creditcardreform.org/pdf/credit-card-facts-stats.pdf. And if you’re thinking that banks are just being fairly compensated for risk that they’re taking, see: Adam J. Levitin. “A Critique of the American Bankers Association’s Study on Credit Card Regulation” 2008. Available at: http://works.bepress.com/adam_levitin/4. []
  7. From: http://projectonstudentdebt.org/files/pub/classof2009.pdf. Also includes information about percentages that graduate with debt. []
  8. Debt consolidators and settlement companies make so much money that they can afford to pay $30 *for each click* on one of their online ads. If you know what Google’s keyword tool is – just check it out. []
  9. This is no accident, Rod is a tenacious entrepreneur. He doesn’t need to use the door; he just walks through walls. That’s critical in the financial space (see Paul Graham’s recent post about Bill Clerico, founder of WePay). Plus, he’s a sweet talker on the phone. []

Receive updates:      
You can always unsubscribe by clicking on the link at the bottom of each e-mail.

  • http://twitter.com/pfs_Aaron Aaron Rocha

    You guys ought not to reinvent the wheel. Primerica, recently most successful IPO in April 2010, helps middle income families get out of debt, become properly protected and helps start a healthy savings plan. I know this sounds crazy but no one out there is offering a free financial roadmap to middle-income americans. Showing them how money works. The case for Primerica gets even better when you see their business opportunity.

    • Parsons Nate

      1. From the limited information on each site, I’d say these products are *completely* different. Yours talks about insurance and loans, this one is a web service that monitors your credit cards and helps you manage them.nn2. Even if these were similar products, having them compete would be a *good* thing for consumers. Plus, a successful IPO means that this is a good market to be in, and there’s probably room for a lot more players.

    • Fkjsdlf

      Primerica is a SCAM !!!

  • http://twitter.com/pfs_Aaron Aaron Rocha

    You guys ought not to reinvent the wheel. Primerica, recently most successful IPO in April 2010, helps middle income families get out of debt, become properly protected and helps start a healthy savings plan. I know this sounds crazy but no one out there is offering a free financial roadmap to middle-income americans. Showing them how money works. The case for Primerica gets even better when you see their business opportunity.

    • Parsons Nate

      1. From the limited information on each site, I’d say these products are *completely* different. Yours talks about insurance and loans, this one is a web service that monitors your credit cards and helps you manage them.

      2. Even if these were similar products, having them compete would be a *good* thing for consumers. Plus, a successful IPO means that this is a good market to be in, and there’s probably room for a lot more players.

    • Fkjsdlf

      Primerica is a SCAM !!!

  • http://twitter.com/BreadlyVP Bradley Wayne

    awesome…

  • http://www.bread.ly/ Bread.ly

    awesome…

  • James

    cut the bull – you basically setup the company for lead gen revenue, which is okay. mint did that. and i wish you guys all the best in your success! the world needs more services like this! :)

  • James

    cut the bull – you basically setup the company for lead gen revenue, which is okay. mint did that. and i wish you guys all the best in your success! the world needs more services like this! :)

  • Footnoteshyperlinks

    You footnotes will be easier to read if in the article they included actual hyperlinks to the footnotes at the bottom.

    • Anonymous

      Thanks for the suggestion! We’ll do that on the very next post.

  • Footnoteshyperlinks

    You footnotes will be easier to read if in the article they included actual hyperlinks to the footnotes at the bottom.

    • Anonymous

      Thanks for the suggestion! Fixed.

  • Nikki_a_martin

    I love the writing. More data is better. Most is best. (excellent) Hail Mary pass-esque connections (nice!) and the footnoting of a blog post (interesting!) nice writing nacho!

  • Nikki_a_martin

    I love the writing. More data is better. Most is best. (excellent) Hail Mary pass-esque connections (nice!) and the footnoting of a blog post (interesting!) nice writing nacho!

  • http://twitter.com/brianlee87 Brian Lee

    Isn’t this essentially what Mint is doing?

  • http://twitter.com/brianlee87 Brian Lee

    Isn’t this essentially what Mint is doing?

  • Pingback: Next year you'll be one year older (a debt/lifestyle thread)

  • Pingback: My bank lowered my credit limit: A user story

  • Onerealkewlguy

    My understanding is that mint is about “achieving ones savings goals” and readyforzero is about “eliminating debt”, the distinction is not lost on one, such as myself, that carries heavy credit card debt with little hope of ever creating savings.

  • http://www.handymanreality.com Don Moody

    My understanding is that mint is about “achieving ones savings goals” and readyforzero is about “eliminating debt”, the distinction is not lost on one, such as myself, that carries heavy credit card debt with little hope of ever creating savings.

  • Pingback: Lu·cra·cy

  • http://lucracy.com Lucracy.com

    Thank you, this is great! Hopefully we can educate people and help them turn this financial crisis upside down?

  • http://lucracy.com Ian Revereza

    Thank you, this is great! Hopefully we can educate people and help them turn this financial crisis upside down?

  • Pingback: Review: ReadyForZero Launches Free Online Debt Management Platform | Credit Karma Blog

  • http://www.occent.com ann @ merchant services

    You are great guys! Helping those people get out of their financial problems is a hard task to do especially if they could refrain from spending their money. Continue your good deeds guys and I know that you have inspired a multitude. By the way, both of you look good in your photo.

  • http://www.occent.com ann @ merchant services

    You are great guys! Helping those people get out of their financial problems is a hard task to do especially if they could refrain from spending their money. Continue your good deeds guys and I know that you have inspired a multitude. By the way, both of you look good in your photo.

  • Pingback: Something New Is Coming...

  • Pingback: ReadyForZero Helps You Fight Debt, Using Clever Mind Hacks | Mecca Bey – Web Curator & Social Media Maven Extraordinaire

  • Sherry Blossom

    I’ve gone through almost every blog post from present to this one! I must say what you are doing is great! I appreciate it. Seeing the growth (through blog posts) and even changes in the interface are exciting. You are helping us to succeed and our success is helping you! See you at the top!

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Hi Sherry, that is so awesome to hear that you read almost all our blog posts! I have to ask – how long did it take from beginning to end? I’m glad you liked them and I’m excited to hear more from you in the future. Please continue to let us know how we can help you better. And again, many thanks for the kind words.