How to get into the high four-figures buying a $230 dress, pay off debt later – avoid this trap and protect your finances

Linda Ta Unimoto, a certified financial educator and founder of Good For You Money, says she has seen the impact that buy-now, pay-later (BNPL) schemes can have on consumers. One of her clients once racked up four high debts after spending on BNPL that started with a $230 wedding dress and progressed to luxury skin care, entertainment and food purchases.

“BNPL makes consumers feel they can buy things they don’t normally do and spend more than usual,” Yonomoto told CBS MoneyWatch in an article published on August 19 (1). “It creates unsustainable spending habits.”

For the uninitiated, a BNPL loan is a short-term financing option offered by some retailers at the checkout that allows you to split the purchase cost into a series of payments, such as four equal payments over four months. If you make your payments on time, you usually don’t get charged interest. But if you’re late, the fees and interest charged can be astronomical.

And a large proportion of Americans availing BNPL loans fall behind in their payments. LendingTree survey results show that 54% of BNPL users admitted to making late payments in the past, including 41% in the past year (2). Moreover, 23% of BNPL users said that they have activated three or more loans at the same time. A quarter of consumers have also used these loans to buy food during price hikes.

Since BNPL loans are mostly interest-free – as long as you make the payments on time – they can make big purchases accessible and manageable. They can also be an option for people with limited credit history, as they usually don’t require a credit check and offer almost instant approval, according to an expert (3).

Problems can start when the debts are collected. On top of big ticket items, some people use BNPL loans for small daily purchases. A LendingTree survey found that 33% of users see BNPL as a “bridge” to their future salary.

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Costs can multiply through impulse purchases, late fees and potential credit damage. If you’re late with a payment, you could be charged a flat late fee as well as interest rates that are higher than your credit cards. Default accounts can also be sent to collections.

So, if you start piling up BNLP loans, can’t keep up with multiple payments or lose track of when you need them, you could end up worse off than before.

To avoid regret (and snowballing debt), avoid hoarding BNPL loans. If anything, aim for only a BNPL loan at a time and work the installment payments into your budget.

Take the time to make sure you understand the loan terms before making a purchase – even if you have already taken BNPL loans. Some services may have different billing cycles than others.

For larger purchases, save money in a high-interest savings account instead of borrowing over time—especially if the intended purchase is more of a “want” than a “must.”

If you are already stuck on the BNPL loan treadmill, don’t try to take any new loan. Make a list of all your debts and when they are due, and then work the debt repayments into your budget and calendar.

If the debt has grown too large to manage, you may need to find an additional source of income, get a debt consolidation loan or work with a nonprofit credit counselor to create a repayment plan.

The accessibility, interest-free repayments and cash flow relief provided by BNPL loans can be attractive. But, like other loans, it can drain your budget and leave you further in debt if it’s not used responsibly.

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CBS Money Watch (1); LendingTree (2); veteran (3)

This article provides information only and should not be used as advice. It is provided without warranty of any kind.