Holiday cheer comes with a price: ‘Buy now, Pay later’ splurges raise debt hangover risk in US

As the holiday season ramps up, Americans are pulling out their wallets, eager to shower loved ones with gifts. But this year, a growing trend might leave a bitter aftertaste: a surge in “buy now, pay later” (BNPL) purchases, potentially leading to a debt hangover in the new year.

BNPL services, platforms like Klarna, Affirm, and Afterpay, have exploded in popularity, offering consumers the ability to finance purchases without traditional credit cards. With enticing promises of zero interest and easy installment plans, these services have become a tempting alternative, especially during the holiday shopping frenzy.

Roxanne Ross, a Florida resident, exemplifies this shift. She’s eyeing the latest Apple AirPods for her son but is wary of credit card interest rates. BNPL seems like the perfect solution, allowing her to spread the cost across four installments without additional charges. While convenient, this purchase adds to the growing pile of BNPL debt many Americans are accumulating. 

Data paints a sobering picture. BNPL usage has doubled in the last year, with 53% of Americans planning to use it for holiday shopping. This translates to an estimated $45 billion in BNPL transactions during the festive season alone. While BNPL platforms often promote responsible repayment, many users, particularly younger demographics, lack a strong financial literacy foundation, potentially leading to missed payments and mounting late fees.

“The ease of BNPL can lure people into overspending,” warns Bruce McClary, spokesman for the National Foundation for Credit Counseling. “We’re seeing an increase in debt counseling requests directly tied to BNPL.” The concern arises from the risk of “BNPL fatigue,” where consumers rack up debts across multiple platforms, unaware of the cumulative financial burden.

This potential debt hangover extends beyond individual finances. The rise of BNPL could pose a systemic risk to the US economy. A sudden surge in late payments or defaults on these platforms could ripple through the financial sector, jeopardizing consumer confidence and economic stability.

Financial experts urge caution before succumbing to the BNPL allure. It’s crucial to consider alternative payment methods, compare prices to avoid impulsive purchases, and track BNPL expenses meticulously. Building a budget and prioritizing needs over wants are essential to avoid slipping into a debt spiral.

The onus also lies on BNPL platforms. Regulatory measures encouraging stricter credit checks and clearer disclosures of potential risks are crucial for ensuring responsible usage. Platforms must prioritize financial education and encourage users to set spending limits and track their BNPL debts.

The convenience of BNPL shouldn’t come at the cost of future financial well-being. As Americans embrace this new form of consumer credit, they must navigate the festive season with caution, ensuring that holiday cheer doesn’t lead to a January filled with debt anxieties. Only through responsible use and stricter regulations can the potential pitfalls of BNPL be mitigated, allowing the joy of giving to remain the true focus of the holiday season.

Key Points:

  • BNPL use surges for holiday shopping, raising concerns about debt hangover.
  • Americans rack up BNPL purchases on multiple platforms, increasing risk of “BNPL fatigue.”
  • Potential for late payments and defaults poses risks to US economy.
  • Consumers advised to budget, compare prices, and track BNPL expenses.
  • Platforms urged to enforce stricter credit checks and offer financial education.
  • Responsible use and regulations key to mitigate BNPL pitfalls.