How do you respond when the grocery checker asks how you’d like to pay for your groceries: debit or credit? A debit card and a credit card might look similar and allow you to conveniently settle up without cash, but the two cards function differently—and, more importantly, impact your credit health and spending habits in distinct ways.
When you use a credit card, on the other hand, you’re borrowing money from your credit card company to pay for your items. The credit card company gives you a set amount of funds that you may spend, often referred to as your credit limit. If you don’t completely pay off your balance at the end of each billing cycle, you’ll owe your credit card company interest on your balance.
When you swipe your debit card, the money is deducted directly from your linked bank account. For security, you may have to enter the PIN associated with your debit card when you use it. If you buy a $500 item with your debit card, and your linked bank account only has $450 in it, the transaction will most likely still go through, but you’ll likely have to pay an overdraft fee to your bank for having insufficient funds.