⚠️ Impulsive Debt

You gotta know the holiday season has arrived when stores stock shelves with tree ornaments. Now we’ve got Black Friday doing the sales thing next week, so let’s talk about a big debt trap that could cost you – Buy Now, Pay Later.

Let’s do this!

Today’s newsletter is 643 words, 3:15 minutes.

1 big thing: Buy now, pay forever?

You’ve seen it at online checkouts on everything from electronics to makeup and more. It’s an increasingly popular payment option called Buy Now, Pay Later (BNPL).

What is it: BNPL is a point-of-sale installment loan that allows borrowers to make online purchases, often interest-free. These microloans – processed by fintech companies like Affirm, Afterpay, and PayPal – grew in popularity during the pandemic.

• BNPL is growing at a fast clip, with an estimated 59.3 million borrowers in 2022.

Approval can be instant and convenient with repayment schedules broken into equal amounts spanning several weeks. Miss a payment though and you’ll get dinged with a multitude of fees, as much as 400% annualized for those with iffy credit.

2. 👋 Hello YOLO!

Impulsive shoppers in need of instant gratification should beware, BNPL loans can lead to expensive decisions in seconds. Sure ‘you only live once’ (YOLO) but debt can persist for eons.

Increased spending. Even if you’re good with repayments, around 20% of BNPL borrowers added a little extra to their online carts than previously planned. (source)

• More than half of consumers say they have regretted making a purchase because the item was too expensive. (source)
• Average debt is around $880.

Generational unwealth: Financial habits start when we’re young. If microloans on toothpaste become the norm, GenZs – who are frequent BNPL users – could be taking on debt that sacrifices a healthy financial future.

3. 💳 BNPL vs. credit cards

Credit cards are accepted pretty much everywhere, have points and travel programs, and offer various types of insurance too.

• You’ll need to get approved and will build credit history.
• Pay off your plastic and there’s no interest, but make a late payment and balances accrue.
• Returns are easier, and features like ‘chargebacks’ add a layer of protection for consumers.

BNPL apps typically don’t require credit approval and rarely report to credit bureaus.

• Sometimes large purchases are a necessity and spreading out payments can ease cash flow.
• Skip a repayment and you’re on the hook for hefty fees.

4. 🧠 Brain science

BNPL is often touted as a fintech innovation. Really? This isn’t innovation at all. It’s another way to amass debt, and it’s putting a generation of young people at financial risk.

Behavioral science can help!

• Loving instant rewards is very human. Failing to see the consequences is also very human.
• There’s an empathy gap when it comes to your present self and your future self.
• Thinking about a future with savings and without debt could be the starting point for improving the decisions you make today.

5. Score!

In a recent interview on The Cash and Kerry podcast, we looked at HOW to improve your credit score, the five factors that affect your credit rating, and tips for repairing credit.

Watch: How to Raise your Credit Score

This podcast is eye opening, plus there’s a free course with a step-by-step plan for rebuilding credit.

Love love love,

Kerry