Most consumers already know that credit cards are easy to run up and hard to pay down. Just how difficult, however, can come as a surprise.
A calculator published by the Federal Reserve estimates that, at the average annual rate of 14%, it would take nearly 30 years to pay off a $10,000 balance by making the minimum payment of $200 a month.
Naturally, most people would rather not spend decades paying for luxuries enjoyed in the previous era. That, combined with the increased budget consciousness that typically emerges in recessionary periods, is opening up a niche for startups addressing the needs of consumers to reduce debt burdens.
“We like to call it Weight Watchers for debt,” says Scott Crawford, founder and CEO of Debt Goal.
Debt Goal charges customers $15 a month for a service that tracks their credit cards and other debts, monitors fees and interest rates, and sets up a payment plan that helps to eliminate debt in the shortest period of time.
It’s an unusual proposition given that free calculators for estimating credit payments abound online. Yet Crawford, who formerly ran a research and development group for credit card issuer HSBC, says the backend processing required to power Debt Goals service is complex, as it monitors continuously fluctuating rates and fees on cards and makes dynamic changes in how payments get allocated based on that data.
For example, he says that many consumers get caught off-guard by deferred interest charges, commonly used with retailer credit cards, in which failure to pay off the full balance within a set grace period results in a hefty added cost.
Crawford says that currently the two-year-old business has about 20,000 users who are actively managing about $1 billion combined in debt. He plans to use the money from the new funding round to improve and expand the site and attract more distribution partners, such as financial advisory sites and providers.
Debt Goal is one of several recently funded startups with business models tied to managing consumer debt. San Francisco-based Credit Karma, which operates a site for monitoring and managing credit scores, raised $2.1 million in November from The
Redwood City, Calif.-based Lending Club, which operates a site for people to make loans to each other, raised a $24.5 million follow-on funding round in early April that was led by
In addition to startups in the sector attracting investment dollars, acquirers have shown a taste for innovative consumer finance businesses. In January, American Express completed its acquisition of Revolution Money, a venture-backed developer of a technology platform for credit cards and online peer-to-peer payments, for $300 million in cash.
Also, financial software provider Intuit in September announced that it would pay $170 million to acquire Mint.com, a venture-backed site for managing personal finances. —Joanna Glasner