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How a Pile of Student Debt Inspired a Venture-Backed Startup ReadyForZero racked up $4.5 million in funding to help consumers pay their bills.

By Gwen Moran

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Rod Ebrahimi watched his girlfriend finish graduate school with a hefty amount of debt. The two created a spreadsheet to help plot how to tackle repaying her student loans and the other debts they had accrued. As they worked, it occurred to Ebrahimi that this was a widespread problem that technology could solve--the perfect opportunity for a Silicon Valley startup.

His own personal finance hurdle was the catalyst for ReadyForZero.com, a San Francisco-based company that helps consumers manage debt. At the time of his light-bulb moment, Ebrahimi had been accepted to Y Combinator, a Mountain View, Calif., incubator that helped launch social news site reddit and document-sharing service Scribd. Ebrahimi and Ignacio Thayer, a former senior software engineer at Google, decided to ditch their idea for a news-aggregating service and instead use their time at the incubator to develop the debt-relief concept.

ReadyForZero, which launched in February 2011, differs from traditional debt-management and credit-counseling services in its approach, which involves collecting users' account credentials (user names and passwords) to access balance and payment information directly from credit card companies, loan servicers and mortgage holders. Users report their income, and ReadyForZero makes recommendations about how to best pay down their bills. The vision was not to take over management of the debt but to provide tools consumers would need to get control of their debt on their own. And ReadyForZero's data shows that this system is successful: Its users are paying off their debt in half the time of the average consumer.