ATLANTA — Holiday shoppers spent a record $20 billion through “Buy Now, Pay Later” programs this past season, nearly a 10% increase from the previous year.
According to data from Adobe, the surge in installment-based spending comes as financial experts warn of the risks associated with short-term debt.
Channel 2 Consumer Adviser Clark Howard cautioned that the programs are loans rather than “free money,” and they can lead to significant financial consequences if not managed properly.
Clark emphasized that while the service is widely available for everything from electronics to daily meals, consumers must treat these transactions with the same seriousness as traditional loans.
The growth of these programs has prompted changes in how the debt is tracked by major financial institutions. Starting this past year, FICO began reporting “Buy Now, Pay Later” data, which means missed installments can now negatively affect a consumer’s credit score.
CJ Lawrence, a shopper, noted the potential for positive outcomes if the service is used correctly.
“My hope is that, you know, people’s credit scores can, you know, also go up as a result of making the payments,” Lawrence said.
Which they do, but while the interest-free nature of the pay in four models is enticing, Howard says, “Remember just like any other debt, if you have any unexpected medical bills or lose your job, you’re still on the hook for those payments.”
The payment structure for “Buy Now, Pay Later” typically breaks a purchase into four smaller installments. While these programs often do not charge interest, consumers can face fees for missing a payment.
Takyla, another shopper, who uses the service for items like shoes, suggested that shoppers should be cautious.
“If you know you can’t afford that every two weeks, don’t do it,” Takyla said.
Atlanta resident Dawnielle Smith, who has used these programs, recently learned about the change in credit reporting. She noted that many consumers might be unaware of the risks to their scores.
“That’s good to know, make sure I’m not missing any payments that was already a priority,” Smith said. “But I bet a lot of people aren’t paying attention to that.”
Smith’s own financial journey led her to seek professional help after a career change cut her income in half. She accrued $30,000 in credit card debt while trying to keep up with student loans and monthly bills.
To manage the debt, she turned to Money Management International, a nonprofit debt consolidation agency. Smith said the agency helped her gain control of her finances.
“They’ve decreased my interest rates,” Smith said. “One of my cards I don’t have an interest rate with.”
Tara Alderete, the director of enterprise learning at Money Management International, said it is common for consumers to intentionally take on debt during the holidays.
“A lot of folks just put it on the credit card, use that buy now, pay later, think ‘OK, you know, I’m gonna deal with this after the new year’ and then it can kind of snowball,” Alderete said.
Alderete explained that structured repayment plans through organizations like hers offer a faster path to financial stability. According to Alderete, such programs allow individuals to become debt-free in five years or less.
Without intervention, she noted that some consumers might spend 20 to 30 years paying off similar balances.
“I want you to remember: This isn’t just free money with a cute name. This is a loan, and if you don’t do everything you are supposed to, they will eat you up and ruin your credit,” Howard said.
[DOWNLOAD: Free WSB-TV News app for alerts as news breaks]
[SIGN UP: WSB-TV Daily Headlines Newsletter]