This Is the Dumbest Financial Move You Can Make in the US Today, According to These Ramsey Experts
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In a reel posted to Instagram, Ramsey experts Ken Coleman and George Kamel discussed the dumbest financial move Americans can make today.
What is it? Buy now, pay later (BNPL) plans. Find out what the experts have to say about this financial move and how it can affect your money.
What Is Buy Now, Pay Later?
BNPL is a payment plan that breaks the total amount due at checkout into smaller, interest-free payments over time. The consumer pays the first installment at checkout and the other installments afterward. BNPL is typically used for specific purchases, and it’s usually easier to qualify for than a credit card.
Many retailers are partnering with BNPL companies to offer what they call “financial breathing room,” according to Kamel. However, BNPL is not being used just for large purchases. It’s also being used for small, nonessential purchases, like a 12-pack of Coke, Coleman explained.
The dangers for consumers lie in the ease of stacking several BNPL payment plans on top of each other, overspending, losing track of how much is owed and going into debt over frivolous purchases. Kamel cited late fees and interest on BNPL that get people into a “middle-class spending trap.”
BNPL Can Lead To Mounting Debt
While BNPL can assist with cash flow if used carefully, it can lead to mounting debt if used carelessly.
“It’s a loan,” said Austin Kilgore, analyst with the Achieve Center for Consumer Insights. “No matter how it’s presented, BNPL is adding debt. Because it doesn’t go on a credit card, for some consumers, it feels like it’s not debt.”
And this psychological trick is just one that BNPL utilizes. By exploiting what many call “the pain of paying,” BNPL helps your brain register less pain upfront because payments are broken out into smaller amounts due at later dates instead of all at once when you check out. This can make it easier to pull the trigger on purchasing those Coachella tickets and Adidas sneakers. However, these purchases all add up — even though it may not feel like it in the moment.
Kilgore explained that managing the schedule of payments can be challenging because, unlike credit cards that are paid at the same time each month, BNPL payments are due at rotating intervals. This can also make budgeting difficult. And if you miss or are late with a payment, interest and late fees can accrue.
How Can You Avoid BNPL Setting You Back Financially?
“If you don’t have the money, you shouldn’t spend it,” said Melanie Musson, insurance and finance expert at Clearsurance.com. Plain and simple. “The more you live your life in reverse, buying things and paying for them later, the more indebted you’ll become and the harder time you’ll have getting ahead financially.”
If you do insist on utilizing BNPL, Kilgore recommended setting calendar reminders for timely payments and factoring those payments into your overall budget.
He also advised asking why you are using BNPL. If you’re using it for essentials like groceries instead of larger items like electronics, it’s possible you’re living outside your means and need to address a much deeper issue.
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