How to Get Off the Buy Now, Pay Later Treadmill

Everything that makes a buy now, pay later (BNPL) loan appealing is also what makes them so dangerous:

• There's no credit check, so you can use them even if you're already struggling with debt
• Approval is fast, so you can make purchases before you can think twice about whether or not you really should
• The terms are small and the payments are low, so they certainly seem manageable
• You can have multiple loans at once, allowing one small, affordable debt to quickly balloon into multiple debts that aren't so affordable any more.

For consumers living paycheck to paycheck and struggling to balance higher prices and stagnant wages, BNPL loans can feel like a low-risk way to spread costly purchases out over a handful of payments without needing to use credit. Many come with 0% interest if you repay the debt on time, making BNPL seem almost like free money.

But it's very easy to get in over your head with BNPL loans. So let's look at why people struggle with BNPL loans and what you can do if you're feeling overwhelmed.

Why buy now, pay later loans get out of hand

BNPL loans are available almost everywhere. You can use them to buy a refrigerator at Best Buy, bed sheets on Amazon, jewelry on Etsy, and Thai food on DoorDash. At first glance, breaking up a $100 purchase into four interest-free payments of $25 seems harmless, especially if money's tight.

For the consumers who struggle with BNPL loans, though, it usually doesn't stop at one purchase. With a tight budget, paying $25 for the microwave you bought two months ago may mean that you don't have enough available to buy flea and tick medication for your cat this month. So you finance that, too. And the next thing. And the next thing. Until eventually, yes, you're financing your Taco Bell order.

BNPL debt tends to stack

Most people can't buy a house or a car with cash. Most of us have to take out loans to go to college or complete major home improvement projects. There are times when you're going to have get financing and that's okay. 

But the trouble with buying things on credit is that it's extremely easy to buy things you can't really afford. With BNPL loans, you might be able to afford paying 25% of something, but that doesn't mean you can actually afford it. And any time you spend money you don't have on purchases you can't afford, you put your future self in a deeper and deeper financial hole.

That's why most people who use BNPL loans have multiple loans at a time. You use them because money is tight, but your money only gets tighter as you start carrying these BNPL payments. Even small payments start to add up when you're repaying a bunch of loans.

It's easy to lose control of BNPL debt

If you fall into the trap of overusing buy now, pay later loans, you can quickly become overwhelmed by the sheer number of overlapping payments and lose track of exactly how much you owe and when payments are due. 

Most BNPL loans don't charge interest, but they do charge late fees. These fees vary by lender and they rarely exceed $10 per late installment, but if you're juggling multiple BNPL loans and a tight budget is the main reason why you missed a payment, the added strain of a late fee is only going to make it harder to get caught up. More likely than not, a late fee may lead to a series of late fees, as the problem escalates.

How to escape from buy now, pay later debt

Buy now, pay later loans are a unique financial product, but the path to clearing them away is a familiar one:

Don't use any new BNPL loans

This may be harder than it seems to be, especially if you've become reliant on credit to manage shortfalls in your budget. But it really is essential that you not take out any more BNPL loans until the situation is under control. 

If the problem is bad shopping habits, consider deleting any apps or saved profiles that make it easy for you make impulse purchases.

Create a list of your BNPL loans

The nature of BNPL loans (small amounts, quick approval) make it possible that you're not even totally clear on how bad the situation has gotten. To get back on track, list out every active loan: include the provider, the balance, the due date, and the payment amounts.

Assess your situation

Once you've got a complete picture of your buy now, pay later debt, you need to determine how to proceed.

If the debt is big, but manageable, you may just need to set up automated payments, avoid adding new debt, and wait until everything's been paid off.

If the debt is too big to handle with your current income, you'll have to figure out the best way to get around that barrier:

• Create a temporary source of additional income with a side hustle or part time job.
• Use a debt consolidation loan to clear away the debts and leave you with a more manageable (though likely more expensive) monthly payment.
• Work with a nonprofit credit counselor to update your budget, review your options, and create an affordable repayment plan.

Put your plan into action

Whatever path you choose, stick to it. Track your progress and celebrate your success. If you're feeling in over your head, MMI offers free financial counseling 24/7, online and over the phone. Our trained counselors can help you pick the debt relief solution that makes the most sense for you and your situation.