HENRY COUNTY, Ga. — “Buy now, pay later” once was mainly used to finance large purchases. Now, many consumers are turning to the short-term loans to help cover everyday expenses.
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Federal Reserve data shows consumer spending through buy now, pay later services has doubled in just two years, reaching $160 billion last year.
For Henry County resident Helena Emenalo, the services have become part of managing a household budget while raising three young children.
“Things like gas or groceries or daycare are just essential things that we use them for because it’s necessary. Everything’s so expensive,” Emenalo said.
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A recent LendingTree study found groceries are now the third most common purchase made through buy now, pay later accounts.
Major providers are marketing the products for routine expenses. Affirm’s website prominently promotes financing school supplies, while Flex specializes in allowing consumers to split rent payments into installments.
With three children age 4 and younger, all enrolled in daycare, Emenalo said she carefully monitors her spending through the services while trying to balance the family’s monthly budget.
“It’s very easy to stack payments and not realize the kind of debt that you’re getting yourself into,” she said.
The LendingTree survey found many consumers are struggling to keep up with payments:
- 47% of buy now, pay later users said they have made a late payment this year.
- 54% said they use the accounts to help make ends meet.
- One-quarter reported having four or more active loans.
“We use it, we spend it, we kind of forget about it, but it adds up very fast,” said Tara Alderete of Money Management International, a nonprofit credit counseling organization.
“We see on average a budget deficit of about $300 a month with clients that come to us at MMI,” Alderete said.
While buy now, pay later services are often promoted as alternatives to high-interest credit cards, Alderete warned that consumers who fail to make payments on time can face similar financial challenges.
“It can quickly get out of control and snowball,” she said.
Emenalo knows those risks firsthand. She previously paid off $10,000 in credit card debt and has seen her credit score rise by 100 points. She said she does not want to fall into a similar debt trap with buy now, pay later loans.
“I have more than just myself to think about and I don’t want to be in a position where I can’t take care of my family because I’m in so much debt,” Emenalo said.
For now, most buy now, pay later companies do not report loan activity to credit bureaus, meaning the accounts generally do not affect consumers’ credit scores. However, that could soon change.
FICO has said it is working to incorporate buy now, pay later accounts into credit scoring models in the future.
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