Avoid the Buy Now, Pay Later pile up during the Holiday Season

by: holli casto
vp of training and development
Published 10/24/2024

We know, it's only October and for a lot of us, the Holiday Season is the furthest thing from most of our minds. But, when you look at the calendar, the holiday season is only a few paychecks away.

Planning ahead will help you avoid overspending and needing to lean on your credit cards or Buy Now Pay Later services to pay for items you can't afford.

Buy Now Pay Later services lead to overspending

Buy Now Pay Later services are available mostly through online services and have also become available for some in-store purchases. These services break up your purchase into four equal payments but do not report your payments to the credit bureaus.

Last year during the Holiday Season, it was estimated that Buy Now Pay Later services accounted for $16.6 billion in online spending, a 14% increase compared to 2022.¹ The issue with Buy Now Pay Later services is that, as you make individual purchases that are broken down into small installments, you may not realize how much your obligation will be in two weeks. This can be especially true when different retailers use different Buy Now Pay Later services, making it harder to keep track of how much you're accruing with each service. Furthermore, it can be hard for you to keep track of multiple due dates from multiple services.

These services are an attractive alternative to credit cards for consumers because they allow you to make your payments in installments, but do not charge interest on the balance you have with them. A large purchase broken down into a smaller payment feels more manageable to most people than making it in one purchase. Ultimately the price you pay for this is that your consistent history of making payments to these businesses is not reported to any credit bureau, meaning you're not improving your credit score.

Phantom Debt

There is no central authority that these services report to, so it's actually not possible to determine how much people owe in total to Buy Now Pay Later services. This means that total consumer debt levels, which reached an all time high this year, could be even higher than we know.²

Buy Now Pay Later companies defend their product, pointing out that a version of Buy Now Pay Later has been available for consumers in the form of layaway or financing for a long time.

Either way, the lack of transparency surrounding these services seems to give both consumers and industry professionals a bit of concern about the state of consumer debt. Buy Now Pay Later Services are more widely available than layaway services, and the lack of transparency surrounding them and lack of regulation makes some worried.

As a whole, our recommendation is to purchase what you can afford, regardless of how you choose to pay for them. If you can pay for them, but want to add more wiggle room to your monthly budget by using a Buy Now Pay Later service, then go for it! But don't get caught in a web of Buy Now Pay Later payments that are too much to handle a couple weeks down the line.

Ways to do the holidays on a budget

Come up with a plan now

While it may sound obvious, coming up with a plan before you start your Holiday shopping is one of the best ways to avoid overspending. There's almost always one or two last minute gifts that come up, but coming up with a budget and a list of the gifts you know you want to give will help you stay on track as you start to shop. Keeping a list like this will also help you keep an eye out for the right sales as retailers start offering discounts leading into the holiday season.

Just like having a budget or avoiding grocery shopping while hungry, doing your holiday shopping with a budget and a list will help you avoid making too many impulse purchases that cause you to overspend.

Take advantage of Cyber Week deals

When you have your list, you know what a good deal actually looks like for a product on your shopping list. In 2023, electronics discounts were as high as 31% off the list price, higher than the 2022 high of 25% off. The same went for categories like apparel, which were 24% off, compared to the 2022 holiday shopping high of 19% off.

Whether this year's deals are as high or not, a deal is a deal. When you know you're going to buy something either way, buying it during a sale is definitely a win for your budget. Just don't wait too long to make your purchase so that your items arrive in time for the holidays.

Look into homemade gifts, experiences, or other unique gifts that don't break the bank

If your budget is still feeling a little stretched thin this year, look into less conventional options for gift giving where you can. We know kids are sometimes uncompromising on some gifts, but if there's anywhere you can get creative with your gifts, here are a few ideas:

Framed photos of a favorite memory with the person on your list. Thrift stores are full of photo frames!
Baked goods
Plans to do an activity with the person on your list. Frequently, there's that one thing you always talk about doing that isn't actually that expensive but you just never make the time to do. Put the time into planning your activity together.

There are countless other options for ways to give gifts to your loved ones that won't break the bank. It just may take a little more time or planning on your part.

At its heart, gift giving is about building a stronger connection with the person you're getting the gift for. It doesn't have to be about material objects or expensive items, and it shouldn't completely derail your budget.

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References:

¹ Repko, Melissa. "Online holiday spending jumps nearly 5% to record, Adobe Analytics says." CNBC. 4 January 2024. https://www.cnbc.com/2024/01/04/online-holiday-spending-rises-to-new-record-adobe-analytics-says.html. Accessed 2 October 2024.

² Dickler, Jessica. "Americans are racking up more ‘phantom debt’ — why that’s a problem." CNBC. 7 January 2024. https://www.cnbc.com/2024/01/07/buy-now-pay-later-is-a-troublesome-type-of-phantom-debt-experts-say.html. Accessed 2 October 2024.

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