A growing number of young people are getting into debt by using “buy now pay later” payment plans, but are they a good idea to use? This article will explain some of the reasons why this is happening and what you can do to avoid it getting you into debt.
What is “Buy Now Pay Later?”
“Buy now, pay later” (BNPL) is a payment plan where you borrow money from a lender and agree to repay the purchase over time, with the option to pay off the balance in full at any time. It’s similar to a larger loan, except it’s typically just for a few small items bought online.
Why are young people getting into debt by using BNPL?
There are a few reasons why young people are getting into debt by using BNPL:
- They don’t understand the risks involved. Many people who use BNPL do not understand the risks involved, including not being able to repay the loan in full on time or struggling to find an affordable way to do so.
- They overestimate their ability to pay back the loan. Many people think they will be able to pay back their debt quickly and without difficulty, but this is rarely the case. Due to high-interest rates and other penalties, it can often take many years for someone who uses BNPL to fully repay their loans, especially if they didn’t plan ahead by budgeting or using a personal loan calculator.
- They rely on short-term fixes to solve long-term problems. Many people use BNPL to temporarily fix a financial problem, such as using it to cover expenses until payday, but this often doesn’t work out in the long run. For example, someone may use BNPL to cover an impulse purchase without considering the long-term ramifications of getting into debt.
- They don’t understand the buying process. Most people who use BNPL don’t know enough about the buying process and how to research different options before making a purchase. This can lead them to buy items they don’t need or are not worth the money they borrow.
- They are influenced by advertising and promotional materials. Advertisers and promotional materials for BNPL often make it look like borrowing money through this method is easy and convenient, which can be misleading.
How can I avoid getting into debt?
There are a few things you can do to help avoid getting into debt:
- Pay your bills on time. This will help you avoid interest charges and late fees, which can add up quickly.
- Stick to a budget. If you know how much money you are spending each month, you will be less likely to spend too much in one month and not have enough money left over to pay your bills on time.
- Take a step back before buying something impulsively. Before you make a purchase, think about whether it is really necessary and whether you can afford it.
- Be aware of scams. There are many scams out there that promise easy money, but in the end, you end up losing money. Be especially wary of any schemes which involve high-interest rates or where you have to pay back a large sum of money at once.
- Be aware of advertising and promotional materials for BNPL products. Many of these materials are designed to make it look like borrowing money through this method is easy and convenient, which may not be the case.
- Consult a financial advisor if you are unsure how to best manage your money. A financial advisor can help you develop a budget, identify potential debt payments and scams, etc.
The bottom line
“Buy now, pay later” is a great way to get into debt quickly. It is popular with young people because it allows them to buy things they want without waiting for their paychecks to come in. However, it is essential to understand the risks involved before using one of these short-term loans.