Time to read : 4 Minutes
Australians are enthusiastic users of Buy Now Pay Later services, but there’s a fine line between harmless cost-spreading and spiralling debt.
Managing multiple repayments throughout the month can leave you overwhelmed and wanting out, while missed payments risk late fees mounting up.
So how can you break the cycle of relying on Buy Now Pay Later, and wipe the slate clean in 2025?
How does Buy Now Pay Later work?
BNPL works by spreading the cost of purchases into a series of regular installments. Generally you don’t pay interest, but you may accrue late fees if you miss payments.
There are more than a dozen active BNPL providers in Australia. Compare Club research in June 2024 revealed that:
40% of users report using BNPL once a month
almost 3 in 10 report using the service weekly.
Be aware: more than half of Aussies now use BNPL, and the value of BNPL transactions in Australia is expected to reach $11.29 billion from 2023 to $20.39 billion by 2029.
How does BNPL cause financial problems?
The ability to spread the cost of a purchase into equal installments without paying interest is understandably attractive – particularly when it comes to large purchases.
But the convenience of BNPL risks creating more problems than it solves. Compare Club research revealed that nearly a quarter of users reported having BNPL debt that ranged from between $1,000 to $5,000 across multiple platforms and at any given time.
Almost one third of respondents reported using three or more BNPL services, which can be complex to manage.
Unlike a credit card, Buy Now Pay Later balances don’t accrue as one single balance. Instead, repayments are made individually for each transaction the service is used for.
If for example you make 10 transactions in one month, rather than just clearing that balance, you’ll have 10 different repayment streams to keep up with. This can mean money is being debited from your account every few days.
Compare Club study found that 20% of respondents have accrued late fees as a result of being unable to pay back their BNPL debt.
Be aware: the way BNPL repayments work make it easy for your debt to spiral out of control.
The psychological trap of BNPL
While many users report viewing BNPL as part of their financial toolkit, the ability to defer responsibility of paying for something is risky.
When we become accustomed to viewing a $200 purchase as four installments of $50, we perceive there to be less barriers to affording that purchase. The human brain loves instant gratification, and BNPL can really enable our tendency to think “I’ll deal with that later.”
Worryingly, the cost of living crisis has seen Aussies turn to BNPL services to pay for essentials like groceries. Supermarkets don’t offer BNPL as a payment method, but users can buy gift cards with BNPL, and then purchase groceries with the funds while paying the balance off over time.
This is particularly concerning given that you’re left paying for groceries eight weeks after you’ve eaten them.
How can I break the cycle of using Buy Now Pay Later?
Breaking the cycle of BNPL can be difficult, especially if you have a number of repayment schedules across multiple platforms.
Critically, if you’re facing mounting repayments that you can’t afford, reach out to your BNPL provider as soon as possible. They may be able to pause late fees or make an arrangement with you to repay.
You can also call the National Debt Helpline to speak to a financial counsellor who can advise you on managing your debt.
Be aware: it’s tempting to ignore and avoid when you’re in debt, but support is available.
If you are able to make your repayments but you want to break the cycle of using BNPL, the first step is to get up close and personal with your finances. Get clear on what’s coming in, what’s coming out, and what you owe.
Secondly, work out how much you can put towards your BNPL debt each time you get paid. You can usually make early repayments with your BNPL provider, which can help you clear your balances faster.
It can be helpful to request that your account be frozen or paused so no new transactions can be made while you work to pay down the debt. This can allow you to focus on paying back your debts without the temptation to keep using BNPL.
Interesting tip: it helps to start seeing your BNPL as a balance to be paid down to zero, rather than a revolving door of spending that’s always moving.
Bottom line
BNPL is a slippery slope, but you don’t have to stay stuck in BNPL debt. Paying it off can be scary at first, but with small steps forward, being upfront with your provider, and getting support where you need, you can break the cycle.
And how good would it be to start the new year in a financially better position?
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Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
