This startup wants to mix the best things about credit and debit into a single card — and it has a 50,000-person waitlist

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Credit card companies want you to fall behind and start racking up debt, Zero CEO Bryce Galen tells Business Insider.

That's how they make their money.

That can, however, be brutal for the consumer, and it's one reason millennials have drifted toward debit cards.

People spend 12% less simply by putting it on a debit card versus a credit card, Galen says. It makes curbing spending easier. And among 18 to 24 year olds, the difference between debit (73%) and credit (27%) is particularly striking. Part of this is a lack of credit history, but part is preference.

"There's a behavioral shift in credit cards," Hans Morris, Nyca Partners managing partner and former president of Visa, explains. Younger people prefer debit.

But while debit cards help you manage your spending, they have a big drawback: a lack of good rewards. That's what Galen set out to fix with his startup, Zero.

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10 purchases you shouldn't make with a credit card
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10 purchases you shouldn't make with a credit card

#1: Household bills

If you are already cutting it close for the month, you may be tempted to use plastic to pay the utility, cellphone or cable bill. But if you’re not paying off your full balance each month, the interest you will be charged makes those monthly bills even more expensive.

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#2: Cars 

Car dealers often don’t allow credit card purchases, or may limit the amount of the purchase price you can put on your card. Dealers don’t like credit card payments because they have to pay the 1 to 3 percent fee the card company charges to process the transaction.

You could exercise the cash-advance option. But you’ll pay a fee and a higher interest rate. Also, you won’t get a grace period on the interest — it will begin to accumulate right away.

Instead of using a card, go to a credit union or bank to get financing approved at a reasonable interest rate before shopping for a car.

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#3: Student loans

If you can’t afford to pay your federal student loans, you have options. They include an income-based repayment plan, deferment, forbearance and possibly loan forgiveness. Take a look at “How to Get Free Help With Your Student Loans” to learn more.

Paying your student loan debt with a credit card increases the amount of interest you’re paying on the debt. Even if you have a zero-percent introductory credit card offer, it will expire in time.

And while the federal government will accept a credit card payment for loans in default, many student loan servicers won’t allow this form of payment.

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#4: Retail therapy

Think a new purchase will cheer you up? Perhaps. But remember that cash is king if you choose this mode of “therapy.” Use cash, and you won’t let your credit card balance spiral out of control.

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#5: Medical bills

If you use a medical credit card available through your health care provider’s office to pay bills, be careful to read the fine print about your obligations.

Also consider steps you can take to reduce health care costs. See “10 Ways to Fight High Medical Bills.”

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#6: A night on the town

Handing your credit card to an unscrupulous waitperson equipped with a skimming device isn’t your only worry. If you’re out on the town throwing back drinks, it’s easy to run up a tab you can’t afford.

So when painting the town, it’s best to pay with cash.

Photo credit: Getty

#7: Big-ticket items you can’t pay off immediately

Credit cards offer great purchase protections and should be used for many big-ticket purchases. But buying something on credit when you can’t afford to pay it off right away isn’t smart.

Photo credit: Getty

#8: Credit card payments

You can’t charge your monthly credit card payment on another credit card. But perhaps you’ve been tempted to use a cash advance from a credit card to bolster your checking account so that you can pay other bills.

We’ve already explained the folly of cash advances. Your credit card is not an ATM and should not be used as one.

There are real benefits, however, to transferring high-interest credit card debt to a new card with a generous zero-percent balance transfer offer. Just be aware of the balance-transfer fee and find out how long the offer lasts.

Photo credit: Getty

#9: ‘Sale’ items

Convinced that you might miss out on savings if you don’t purchase a specific item on sale right away? That’s one of the warning signs of an impulse buy.

Wait a day and think about whether you really need the item. Nine times out of 10, the answer will be “no.”

You aren’t saving money by spending it for something you don’t need.

Photo credit: Getty

#10: Unsecured online purchases

When shopping online, make sure the web address has “https” at the beginning. If it doesn’t, that’s your cue to take your online shopping elsewhere.

In fact, do your homework before purchasing anything online to make sure a company is reputable and not the source of many consumer complaints.

Which purchases do you refrain from making with your credit card? Let us know in the comments below or on our Facebook page.

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Debit + Credit

Galen's basic goal with Zero is to create a card that feels like a debit card in terms of control, but gives you credit card rewards.

Zero, which launches in 2017, will link a 1% to 3% cash-back credit card to a checking account, providing you with a unified view of your finances similar to what a debit card gives you. (One note: getting to a higher tier than 1% cash back will require significant yearly spending of over $25,000). Zero will also alert you if your checking account in dwindling.

The goal is to stop you from going over, instead of the other way around.

Galen's solution to the debit/credit problem proved compelling to Morris, who invested in the company as part of a $2.5 million seed round, and also to over 50,000 people who signed up to its waitlist in a month.

Credit card companies make money in two ways: processing fees and charging interest when you get behind on payments. Zero is trying to cut out the latter, but make up the difference on a lean operation and digital marketing.

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The fine print

Because Zero's card is a credit card, there technically might be circumstances where you could charge a small amount more to your card than you have in your checking account balance. The rules governing bank cards are complicated, and Zero has to walk a fine line to stay on the right side of regulations. It can't completely duplicate debit card functionality.

But Zero has tried to help you control your spending without breaking the rules.

Galen's knowledge of those rules was actually one big thing that attracted Morris to the investment, Morris says. "It's like he has a PhD in bank card regulations," Morris and his Nyca Partners colleagues said to each other.

That's a big asset for Zero.

Morris is usually skeptical of startup founders that come in and pitch him innovative innovative financial products. "That's great, but it's illegal," Morris laughs when recounting what he usually has to say. But Galen isn't naive, according to Morris. He found a system that could work within the regulation.

Galen's next big test will be in marketing the card to customers. His thesis is that using a $100 referral bonus and the power of social media can reduce, significantly, the cost of marketing.

So far, it seems to be going well. Zero has signed up over 56,000 people on its waitlist to date.

Check out Zero for yourself here.

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