When Tishayla Williams, 32, wanted to attend Beyoncé's Fourth of July concert last summer, she turned to buy now, pay later. She could have paid for the tickets upfront — which cost about $1,500 for her and friends — but doing so would have required moving things around "like Tetris," she says. So, dividing the purchase into payments seemed like a good idea, even though it came with a small amount of interest.
"It made more sense," says Williams, who lives in Richmond, Virginia.
Williams is one of many people who have used "buy now, pay later" options to pay for everything from kids' clothes to vacations. A survey conducted by Achieve and Money.com found that the popularity of buy now, pay later is increasing as Americans see their debt levels rise. Thirty-six percent of survey respondents said they've used buy now, pay later to pay for necessities. For some people, however, buy now, pay later — often billed as an easy way to pay — can contribute to financial stress.
"I'm seeing it used more frequently," says Jenn Jessop, the debt solutions manager at America First Credit Union. "We're also seeing the stress of debt stacking with it."
An easy reward, or a slippery slope
Using buy now, pay later to see Beyoncé felt like a well-deserved "splurge" for Williams, who had just finished her master's degree at the time.
"I kind of saw it as something I had earned," Williams says.
Using buy now, pay later to afford an indulgence that might not be in your budget "can be a slippery slope," says Nicole Carlon, a financial advisor with WiseOak Wealth in Boca Raton, Florida.
The tool "isn't inherently bad," Carlon says, especially when it's used occasionally and responsibly. However, it becomes dangerous when buy now, pay later is used too frequently, to live beyond your financial means.
"The people I notice getting themselves into trouble are the people who continue to buy things they don't need," Carlon says. "The problem is when you want to start keeping up with the Joneses." Just because the installment is smaller, she continues, doesn't mean you can afford it.
Williams hasn't had that issue. She's very intentional with her debt, and hasn't used buy now, pay later since taking out student loans to get her doctorate.
"Because my student loan debt already feels so high," she says, "I became much more cautious about taking on additional debt elsewhere."
An impact on credit and repayment
Buy now, pay later options are readily available. Unlike credit cards, they don't require a credit check and aren't reported to credit agencies. But they can still have a huge impact on finances and credit, Jessop warns.
It's easy for people to wind up with many different installment payments from buy now, pay later purchases, experts say. Tracking all those different payments can be tricky. Missing payments can lead to fees from your installment provider, and/or overdraft fees from your bank.
"It's a double whammy," Jessop says.
In addition, having multiple installment payments can impact your ability to pay other debts, like your car loan or mortgage.
When lenders decide how much you can borrow, they consider your "debt to income ratio." But that ratio — and what's manageable to repay — doesn't take into account installment payments that don't show on a credit report, Jessop says. This may be a factor for the 28% of survey respondents who said that their debt is unmanageable. With installment debts hidden, your debt-to-income ratio might seem artificially low.
"It can give you the false sense of affordability," Jessop says.
Escaping the burden of payments
While using buy now, pay later can seem simple and convenient, it's worth considering the emotional toll that it can take.
"I don't like owing debt," Williams says. Because of that, she chooses not to use installment plans that would ultimately just cause her stress. She's not alone. Half of respondents in the Achieve survey say that debt makes them feel anxious, while 46% have felt depressed about their debt and 44% have felt overwhelmed.
"When consumers overextend themselves, it plays into a stressful life for them," Jessop says. "Oftentimes, we don't realize how big an impact our finances can have on our personal lives."
Carlon recommends a simple trick: Instead of using buy now, pay later next time something catches your eye, wait on the purchase. If you still want it after 30 days, go ahead and get it.
While making purchases can give you a quick dopamine hit, sticking to a budget can be empowering long-term.
"Let's get you out of this cycle," Jessop says, "so you can start paying cash and not have the burden of these payments."
