It’s hardly a fun topic to discuss, but it’s the harsh reality that a lot of people out there have significant outstanding debt — many of whom won’t be able to pay back what they owe on time. In fact, there are so many people out there dealing with these issues that it’s given rise to the multi-billion dollar debt consulting industry, which serves as an intermediary between the banks and their customers.
Now a Y Combinator-funded startup called Debteye is setting out to make that industry largely irrelevant. A tough goal, to be sure, and one that will be difficult given how much trust Debteye will have to gain before people trust it as much as a professional debt consultant. But they’re going for it.
Here’s how it works: first, the service prompts you to enter your bank login credentials, so that it can analyze your account information (it uses Yodlee, the same backend that powered Mint, to do this).
Once it’s analyzed this data, Debteye begins to make recommendations based on your account balances, how much you owe, and what your monthly income looks like.
Some of these suggestions are petty straightforward, with Debteye recommending how much you should be saving each month and which bills you should pay off first (in this case the site is a bit like Mint).
One interesting note: not all of the suggestions are as obvious as you’d think. For example, cofounder John Sun says that while many people intuitively think they should pay off the balance with the highest interest rate first, studies have shown that it’s actually better to pay off your smaller debts first regardless of their interest rate (it gives people a better sense of accomplishment).
But not everyone is in good enough financial shape to simply keep making regular payments at their current rates. In these cases, Debteye can help facilitate more involved measures. The first of these is bank debt settlement, where you negotiate with a bank in an attempt to lower how much you ultimately have to pay (this will hurt your credit).
The second is debt management, where you restructure multiple outstanding debts so that you can pay less per month over a longer period of time (this leaves an annotation on your credit report, but doesn’t hurt your credit).
Of course, Debteye can’t exactly renegotiate your debt through a bank’s API. Instead, it helps you fill out pre-generated forms(it’ll also fax them to the bank if you’d like). And it will give you a script to read from when you’re talking to a banker.
This part made me skeptical (wouldn’t a professional debt consultant be better at negotiating good terms than your average layman?). But Sun says that large banks have actually established a set of terms that dictate what they’ll offer to customers (in other words, he says there isn’t much room for consultants to negotiate), which is why their standardized script should work.
Debteye is currently free, and will eventually charge a monthly fee for its service.
This isn’t an industry you see a lot of startups trying to disrupt, but the three Debteye cofounders know it well: they’re all certified credit counselors. That said, I suspect they have a long road ahead of them — debt management is serious business, and Debteye is going to have to work hard to win users’ trust and convince them that they’re as safe and knowledgeable as the professional firms. And the professional firms have a major stake in trying to keep that from happening.
Also see ReadyForZero, a fellow YC-alum that’s looking to help you get out of debt by tracking your monthly payments and suggesting optimizations and deals you may be missing out on.