Nearly half of Gen Zers plan on using Buy Now, Pay Later for their holiday shopping this year, according to a survey by customer service tech firm Bluedot. Millennials are using it in almost identical numbers. What these younger generations may not realize is the financial risk to this popular payment method.
Buy Now, Pay Later (BNPL) services allow customers to make purchases and take them home before they actually pay for the items. The customer must pay the service back within a set period of time — most commonly 30 days, although some BNPL services allow longer.
“Unfortunately, there are no easy ways to buy over time without incurring interest fees,” said Cyndie Martini, CEO and founder of Member Access Processing. “While Buy Now, Pay Later options [can] have lower interest rates, they still add a fee that ultimately makes that item you purchased last month more expensive with each passing month the balance is not paid off.”
Of course, if you pay off your BNPL debts on time, you won’t have to worry about interest or late fees. But racking up debt for the holidays isn’t a new concept, and it’s one that can lead to financial turmoil if you find yourself short on cash down the line. Here are seven alternatives to BNPL that are easier on your wallet.
Apply For a Credit Card With 0% APR
“Credit cards are a highly competitive environment, and they compete on special offers and rewards,” Martini said. “Smart consumers can take advantage of these factors.
“Some credit cards have introductory APRs of 0% for six to 12 months. That means purchases made during that window are interest free. However, if the consumer doesn’t pay off the balance before the introductory period ends, they are required to pay all the back interest.”
These types of credit cards give consumers more time to pay back their holiday debt than most BNPL services. This can be six, 12, even 21 months. However, you typically need good or excellent credit to qualify.
Accrue Cash-Back Rewards To Fund Your Shopping
“The other strategy that Gen Z consumers can use is [credit card] rewards,” Martini said. “One way to do this is to find a cash-back card that has no annual fee. Then, put all must-pay monthly bills on the credit card, including bills for shelter, food, insurance and utilities. By doing so, consumers can quickly build a bank of cash rewards to use during the holiday season.”
The downside to this strategy is that it’s best done over time. Consumers will have more rewards and more money to use if they start months before they need to buy gifts.
You also can use a cash-back card to make your holiday purchases. If you’re confident you can pay it off, it’s better than using a debit card, since the rewards actually can reduce the balance on the card. This is especially true if your bank lets you select a specific category for the most cash back, such as “online shopping.”
Buy Gifts on Layaway
Ellen Cibula, fintech expert and founder of Ellen H Cibula Inc., suggests layaway as a viable alternative to BNPL.
“With layaway, [consumers] put down a deposit on an item and then make small payments until it’s paid off,” she said. “Once it’s paid in full, they can take the item home. This can be a great option if they’re worried about being able to afford everything all at once or if they want to avoid racking up credit card debt or fees from BNPL payments.”
Not all stores offer layaway. Here are some that do, according to the Krazy Coupon Lady:
Pay With Cash or Debit
If you’re nervous about debt this holiday season, you can simply stick to cash or debit cards.
“This is the old-school method for many, and it may involve saving up the funds to purchase something rather than just shelling out cash whenever they want — but it’s also the best way to avoid debt,” said consumer analyst Julie Ramhold with DealNews.com.
“The downside to this is that it does involve planning ahead so that you’re able to save the funds up before making your purchase, which may mean missing out on an early deal.”
Set Deal Alerts Now
In case you’re not still saving up, Ramhold recommends staying on top of holiday deals so you can snag gifts at a fraction of the price.
“Set deal alerts now so that when a product drops in price, you can grab it while it’s discounted and avoid having to pay more later,” she said. “There are multiple sites that allow you to set up alerts for specific products — in some cases, simply creating an account and adding items to a wish list is enough.”
Make Your Gifts or Shop Secondhand
What’s so tempting about BNPL during the holidays is being able to gift your friends and family with things they love even if you don’t quite have the funds to make that happen. But you can still be a good giver by thinking outside the box and either making your gifts or buying them used.
“Secondhand bookstores often have great rates and, depending on the size, plenty to choose from,” Ramhold said. “If you’re crafty, you can take advantage of Black Friday sales at craft stores to pick up items to make your own gifts, or even for supplies to gift to your favorite crafter. You can also consider things like gifting a treat you’re known for, like cookies, fudge or toffee; and, if you’re feeling very generous, including the recipe with it.”
Peruse your local Goodwill or other thrift store for a multitude of gift-worthy items. It’s often assumed that thrifted items are worse than brand-new ones, but a lot of what’s stocked in a Goodwill is practically new and has the same quality.
Use PayPal’s Version of BNPL
If you’re really strapped for cash and determined to get your holiday gifts anyway, you can consider using PayPal to fund your gift purchases.
“The service offers its own Buy Now, Pay Later function, but without late fees,” Ramhold said. “Because PayPal is so widely offered as a payment option, it’s easy to shop where you want, and you can choose Pay in 4, which works like other BNPL methods, or the Pay Monthly option, which provides plans for six, 12 and 24 monthly payments with $0 down and no late fees.
“There are pros and cons for each, but the Pay in 4 assures that you accrue no interest and both methods come with purchase protection and no signup or late fees.”
Make sure you’re familiar with the terms and conditions before you use PayPal’s Pay in 4 or Pay Monthly options, and understand that even without late fees or interest you’re still obligated to pay back whatever you spend.
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