Y Combinator founder Paul Graham likes to advise entrepreneurs taking part in his startup incubator program to focus on “hair-on-fire” problems—areas where new ideas can take hold faster because people are in urgent need of a solution. In the consumer market, there couldn’t be a much bigger hair-on-fire problem than credit card debt. Households with cards carried an average credit card debt of $15,788 in 2008, according to the most current data available from the Federal Reserve Bank of Boston’s Consumer Payment Research Center. And that debt was mounting at an average annual percentage rate of 14.48 percent, triple the rate of the average mortgage loan.
Young people—no surprise here—are especially bad at managing their cards: 41 percent of adults aged 18 to 29 admitted that they’d made only the minimum payment on a credit card at least once in 2009, according to a survey by the Financial Industry Regulatory Authority. Many don’t understand that if they only pay the minimum amount each month, they’ll waste more on interest and drastically delay the day when they’ll be debt-free.
Non-profit agencies like American Consumer Credit Counseling have long offered credit-card holders advice on debt management, and some even help consumers consolidate high-interest credit debt into lower-interest loans. But signing up for this kind of help is a slow, manual process involving lots of phone calls and paperwork. Rod Ebrahimi and Ignacio Thayer, who took part in the summer 2010 term at Y Combinator, say they wanted to try using the latest Web technologies to automate and speed up the credit management process. And the startup they created to do that—ReadyForZero—is taking the wraps off its free online advisory service today, after a long period of private beta testing.
At ReadyForZero, users simply input their name and address, the last four digits of their social security numbers, and login credentials for their online banking and credit card accounts. Then the startup’s algorithms go to work, pulling in information about debt levels and payment schedules and generating a personalized dashboard that graphically summarizes a user’s debt and his progress paying it off over time.
It’s all designed to equip users to take smart action—for example, by paying off their highest-rate cards first, or perhaps by applying online for a lower-interest personal loan. There’s a Mint-like focus on colorful graphics that help users understand their financial situation, but with a specific lens on resolving credit card debt.
Ebrahimi and Thayer are both programmers by training, but Ebrahimi says they decided to dig into consumer debt management after watching their own friends struggle to pay off credit cards.
“In one week I got two e-mails from totally different parts of my life,” Ebrahimi says. “One was from a guy who was asking 12 of his close friends to pitch in and purchase his credit card debt so that he could pay a lower interest rate. That was light bulb number one. Light bulb number two was
