The surest way to avoid overspending is to use your own money for purchases. Yet, everywhere we turn there are other options: credit cards, personal loans, and the growing number of ‘buy now, pay later’ options. Experian reports that Americans added more than $1 trillion in consumer debt in 2022; the highest spikes in credit card and personal loan balances. It’s time to promote a new model…Buy Now, Pay Now.
Gen Z – the oldest of whom turned 25 in 2022 – are driving the highest increases in personal loan debt, up 15.4% from 2021 to 2022. As interest rates rise, the burden of personal debt will stretch budgets and limit consumers’ ability to make more significant purchases like cars and homes. This isn’t just a young people problem though, personal loan debt increased across all generations.
If you’ve shopped online recently for anything from electronics to clothing, you have likely noticed new payment options, including buy-now-pay-later (BNPL) credit. According to a study by Credit Karma, a little over 40% of Americans have used a “buy now, pay later” service. Of those shoppers, 38% have fallen behind on payments and that is where the problems begin. Most BNPL companies make the purchase process quick and easy, skipping a hard credit inquiry and making no impact on your credit score. However, almost three-quarters of those who have missed payments saw their credit scores drop and many are charged late fees. The trouble spirals if you set-up automatic payments for a BNPL purchase and overdraft your bank account.
One final word of caution. BNPL loans lack the consumer protections that come with credit and debit cards. They do not offer the same dispute protections if the item purchased is faulty or a scam. Returning items can also become complicated with a third-party financing the purchase.
The solution…Buy Now, Pay Now.
You have a good idea of what you can afford, based on your monthly income and expenses. If you cannot afford to buy an item today, adding BNPL payments to your budget is only pushing a financial pinch down the road. Do you really want or need the item? Set aside the amount those BNPL payments would have been each month and make the purchase when you have saved enough money. No risk of missed payments, late fees, and harm to your credit there.
Online shopping is convenient and opens our world to an infinite variety of products we can have delivered to our doorstep in a matter of days. The next time you go to make a purchase, ask yourself if you really can afford the item. If the answer is yes, reach for your debit card. You can walk away from the purchase with confidence and no dread of looming payments. Shopping online is safe and convenient with your Alliance Bank Debit Card; you are shopping with the protection of Visa’s Zero Liability Policy. Go one step further to protect yourself by adding your Debit Card to a mobile wallet app such as iPay or Google Pay. When you use a mobile wallet, the merchant does not receive your actual card number.
Stay safe online by using trusted merchants (avoid purchases from social media ads) and spending within your means.
Buy Now, Pay Now.