Buy now, huge debt later?

Is it a smart budgeting move to pay in instalments? Or the beginning of a spiral (send help!)? Or is it both?

The Barefoot Investor has called it the “gateway drug” of credit, but the buy now, pay later business model is sky-rocketing in popularity in Australia.

The premise is that you buy an item (which can be anything from a simple food purchase to a fancy road bike), and pay for it over four fortnightly instalments.

There’s no interest, and as long as you pay on time there’s no fees.

Simple, right?

And for savvy shoppers, it works. They budget over the instalments, keeping their cash in their wallet.

But this kind of debt can spiral quickly.

The Australian corporate regulator ASIC published a review of buy-now-pay-later last year finding one-in-six customers had either become overdrawn, experienced delayed bill payments or had borrowed money to meet their obligations.

This year ASIC also made important changes to how credit cards are assessed, which mean it’s more difficult to get the same limit that you were previously able to.

Credit score website Credit Savvy cited these tips when considering to pay now, or later:

  • You might impulse spend
  • Using your credit card for Afterpay could mean trouble
  • You could be in financial stress
  • Your credit health could be impacted
  • It could be hard to get approved for future loans

And the ultimate spending tip?

Do you really need it?

A wise question to ask yourself, no matter the purchase size.