With Christmas on the horizon most of us will be already thinking about gifts and how to stretch our budget to cover what is generally an expensive time of year.
If you’re more organised it’s likely you’ve planned ahead and saved wisely, but if that’s not the case you could be tempted to try any one of the ‘buy now pay later’ schemes which have flooded the market.
AfterPay, Open Money and zipMoney, to name just a few, gives shoppers a line of credit that allows them to buy goods and pay for them later in installments.
The ‘reverse lay-by’ has it’s advantages, especially if it’s a used as a way to boost cash flow or to make a particular purchase you specifically need, Sydney finance blogger and PR expert Belinda White told FEMAIL.
Belinda White (pictured) said the buy now pay later schemes have their advantages but she urges those doing so to exercise a little caution
The ‘reverse lay-by’ has it’s advantages, especially if it’s a used as a way to boost cash flow or to make a particular purchase you specifically need
But the 38-year-old behind the blog The Fierce Girls Guide to Finance said problems can surface if using the schemes are feeding a habit of impulse buying.
‘If you are deferring future headaches, it’s not a positive thing for your life. There’s not so much a problem with the concept in its totality, but there can be a problem with the behaviour if it drives the consequences of that behaviour.
‘It’s putting off till tomorrow the thoughts about money you should be having today,’ she cautioned.
Don’t use the schemes to defer future headaches, Belinda said. AfterPay and other services can feed a habit of impulse buying
While some might argue using ‘buy now pay later’ services offer a better way for shoppers to spend than using credit cards, the financial expert remains unconvinced.
‘If you are thinking about spending and trying to save money and you have a tool like Afterpay or any of those services that lets you impulse buy it doesn’t help you to make good decision about your money,’ she said.
‘It’s better than a credit card in that you don’t pay interest but you should bear in mind there are late fees if you don’t meet the payments on time.’
Christmas spending: The ‘reverse lay-by’ can ease the pressure during December but be wary of the financial hangover come January, said Belinda
While the services can foster less disciplined behaviour towards spending, AfterPay figures show that of their 1.1 million customers who shop at 8,500 retailers, 85 per cent of those have payments are linked to their debit, not credit cards.
Though the services do appear to be more in-line with better money management, Belinda said that it’s worth considering the possibility of shopping this way can foster dependence over time.
She explained algorithms are used to set credit limits and that the more these services are used, the more shopping behaviour is tracked and credit limits are set accordingly.
Financially responsible: Figures show 85 per cent of AfterPay shoppers are linking payments to their debit cards
‘In a way you can become more and more dependent on it over time, because you are seen as a good credit risk so they will let you spend more and more.’
Christmas spending, especially for those who feel pressured to spend more than their budget will allow may find the services ease the burden, but be wary come January, Belinda said.
According to the Australian Securities and Investments Commission the average credit card debt after the Christmas season will be close to $1700.
‘The Christmas spending hangover is a real thing for many Australians – so many of these services are just another way to get that hangover.
So whether that’s a credit card or one of these services, it will be something you have to deal with in January or February.
‘And that’s when the regret starts to kick in just like a hangover.’
The Sydney blogger suggests taking a proactive stance in terms of Christmas spending and to assess your financial position sooner rather than later to avoid a January spending hangover
The financial blogger advocates for sensible spending over the period, rather than incurring more debt.
‘You have to look at the context of broader money disciplines and attitudes.
‘If you are quite disciplined and you use the service as a little help to buy something now and then, it fine to use.
‘But if you tend to spend more than you earn, and if you tend to impulse buy and if you tend to be an online shopper, she concluded, ‘then it’s really something that can perpetuate or incentivise some counter-productive behaviours.’