Chances are that your “buy now, pay later” bill from the holiday season will arrive soon or has already come through.
If you are not financially prepared to pay up, late fees or other charges can bury you deeper in debt.
BNPL providers typically allow consumers to make online purchases instantly and spread payments over a series of interest-free instalments.
The global BNPL sector has boomed since the Covid-19 pandemic began in 2020, as consumers switched to shopping online during movement restrictions.
The world’s biggest BNPL companies include Sweden’s Klarna, Australia’s Afterpay and the San Francisco-based Affirm.
Financial circumstances can change over a matter of weeks through setbacks such as unemployment, an unexpected bill, a family emergency or other events.
When you are feeling the financial squeeze of those pay-in-four BNPL plans — and possibly other debts — it’s important to create a plan to pay down balances.
Here are a few options to consider as you strategise your way out of debt.
Review your budget
Review your budget and trim unnecessary expenses or swap services for less costly alternatives.
Cancel unused subscriptions, for example, or switch to a cheaper streaming service.
Change your payment due date
Some BNPL lenders such as Klarna and Afterpay allow you to change the payment due date or request an extension.
Klarna customers using a pay-in-four loan can extend the due date of a payment for each order once by 14 days, according to the company’s website.
Afterpay may provide more leeway, allowing changes to the payment due date up to six times per year in the app, according to a company representative.
Lender policies may differ, so read the plan’s terms or ask the lender about your options.
Communicate with lenders about hardships
If a financial setback or emergency keeps you from making payments, the BNPL lender may offer some relief.
Major BNPL companies with hardship policies typically encourage you to contact customer service as soon as possible about payment difficulties.
“Affirm users experiencing financial hardship can contact our help centre so we can work with them to identify an available repayment option that best meets their personal needs,” a company representative said.
Terms vary by lender.
Consider a balance transfer credit card
If you have good credit, a few issuers may offer a zero per cent introductory annual percentage rate on a balance transfer credit card to be used to pay BNPL debt.
That might buy you some time if you are struggling to meet a plan’s payment deadlines, but there are some things to know.
Balance transfer credit cards are designed to help you save on interest charges for a designated time frame, so they might not make sense for certain BNPL plans that don’t charge interest to begin with.
Plus, you can move a balance only as high as the card’s credit limit allows, and there is typically a fee charged on the amount you transfer, usually between 3 per cent and 5 per cent.
Compare potential BNPL costs against these factors.
The process and terms will vary among the card issuers that allow this, so ask what to expect.
If a credit card issuer offers a balance transfer option in the form of a cheque, your ability to use it may also depend on the lender’s ability to accept that payment method.
Weigh the pros and cons of a personal loan
A personal loan can consolidate several debts into a fixed monthly payment with a low interest rate over a designated period.
If the funds are sent to your bank account, it is generally possible to use them to pay any creditors, including BNPL lenders. A good credit score may qualify you for a lower interest rate.
But again, it is not ideal to pay off debt with credit, so it is important to calculate whether the proposed interest rate offers savings, compared with any potential charges on BNPL plans.
If your BNPL plan doesn’t charge interest or fees, paying it off with a personal loan may not be ideal.
But it might be worth using the loan to consolidate other debts — if that can free up money to pay off BNPL plans.