“Buy now, pay later” can be a convenient payment method. But if you don’t factor recurring payments into your budget, it can get messy.
This is especially true if you’re juggling multiple purchases now, pay later plans in addition to other debts. The credit inquiries that some lenders do when you apply for credit don’t always provide visibility into buy-it-now, pay-later plans that you may hold with different companies, so it may be possible to bite more that you can’t chew.
Equifax, one of the three major credit bureaus, aims to change that in the first quarter of 2022 by formalizing a process to include buy-it-now and pay-later information on credit reports.
“Part of the effort here is supporting responsible lending,” said Mark Luber, chief product officer for US information solutions at Equifax. “When a business lends, they want to make sure the consumer can manage that new credit account and can actually pay it back.”
An outstanding buy now, pay later balance could be sent to collections and potentially damage your credit history.
Late fees may also apply, depending on the company. And you may be prevented from using the service temporarily or permanently.
Act early to avoid these consequences and explore some options that can free up some cash to keep your finances on track.
1. SCAN YOUR FINANCES FOR OPPORTUNITIES
Review your budget (or create one) to understand where the money is going. Consider adjustments on non-essential expenses.
“Do you need all these subscription services you have now? Is there a way to get a cheaper cell phone plan or cheaper cable plan or shop around for cheaper insurance? said Katie Bossler, quality assurance specialist at GreenPath, a nonprofit credit counseling agency.
Prioritize essentials like housing, food, utilities, and medicine, and look for ways to save in other areas.
Financial assistance with bills may be available to people whose income is below a certain threshold.
2. SEPARATE WITH PURCHASED ITEM
It may be possible to return the item to the merchant for a refund. Some buy now, pay later, companies don’t refund money paid on interest, but you could be on your way to a cure.
Payments may still be due while reimbursement is pending.
If a merchant won’t accept a return, consider selling the item to get some of the money back.
You can find a buyer on marketplaces, apps or social media websites. Some online marketplaces may take a cut of the sale, so understand the terms before listing the item for sale.
3. CHANGE YOUR DUE DATE OR PAYMENT METHOD
Before you miss a payment, contact the buy now, pay later business to explore options. Each company has different policies on whether you can extend the payment due date or change it.
Bossler recommends trying to align your due dates with the paycheck or pay period that gives you the most wiggle room. If your plan calls for payments every two weeks, “it might be possible to switch to a monthly payment,” she said.
Or, if you originally used a debit card to set up the buy it now, pay later plan, ask if you can switch the payment method to a credit card. You may incur interest with a credit card and you’ll have to pay that bill, but it can save you time if you’re worried about overdrafts or late fees.
4. CHECK IF YOU ARE ELIGIBLE FOR FINANCIAL HARDSHIP
If your financial situation has changed due to circumstances beyond your control, such as unemployment or a family emergency, Buy Now, Pay Later can provide financial hardship assistance.
Afterpay, for example, may offer flexible payment terms at no additional cost for eligible people in difficulty, according to a company spokesperson. But it is important to contact the company for assistance.
5. GET A SIDE GIG
Taking extra hours at work or earning extra income through a side job — driving for a rideshare or delivery service, for example — can offer a way to pay off your purchase now, pay off your debts faster later.
6. CONSOLIDATE OTHER DEBTS
Consolidation may not be ideal, or even allowed, for buy now, pay later, but consolidating high-interest debt elsewhere can free up some cash:
– With good credit (FICO scores of 690 or higher), you may qualify for a balance transfer credit card with an introductory APR of 0%, allowing you to transfer card debt with an APR higher. You’ll usually pay a fee – at least 3% of the transferred amount – but it could be worth saving on interest for a year or more.
— For debts that will take longer to pay off, you might consider a low-interest personal loan. Factor in the cost of the set-up fee and monthly payment to determine if you’ll save money over time.
– A debt management plan with a nonprofit credit counseling agency may offer a way to consolidate credit card debt and other balances into one payment at a fixed rate. You’ll have to pay a fee, but the savings usually outweigh the cost.