5 Questions You Should Ask Yourself About Your Money Before Using “Buy Now, Pay Later” Programs

published Dec 11, 2020
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Credit: Joe Lingeman

Online shopping is tempting enough, especially when we’re confined to our homes and occasionally dealing with pandemic-induced panic or boredom shopping. And while keeping your credit or debit card number stored on your browser makes splurging on a new pan, stack of books, or a couch as easy as clicking “Add to Cart,” a new crop of “digital layaway” programs has made impulse buying and upgrades even more alluring—and it seems like more retailers than ever have partnered with one or more of them, according to CNN Business.

These payment plans vary in their specifics, but many of them digitize the idea of buying things on layaway. This allows customers to split their purchases into installments over the course of a few weeks, months, or longer, depending on the price and program, though unlike traditional layaway programs, the item arrives once the first payment has been made. You can buy anything from new light fixtures to an accent chair to gym equipment using these systems, which often break up a hefty price tag into a more digestible payment plan.

As with credit cards, there are plenty of questions you should ask yourself before taking advantage of these or any financial offers — doing so helps you make the most informed decision possible and may help you avoid money problems down the road if you’re not careful. We talked to money experts who outlined five things to ask yourself before you hit the “Place Order” button.

What’s motivating your purchase?

Before you start shopping in general, let alone with a layaway program, it’s worth it to step back and think about why you’re really so eager to splurge on that new item, much as you would do if you were shopping in-person with cold, hard cash in hand. 

As Jen Smith, creator of Modern Frugality, tells Apartment Therapy, there’s a larger cultural mixup between the ideas of need and want that many consumers should take seriously. “We think we need so many things that we don’t: New gym clothes, a new handbag, but when you think critically, you don’t need a new handbag. You want it,” she says.

According to Smith, the gold standard is to develop “better spending habits so you can make a $200 or $300 purchase from one paycheck and not feel stressed or anxious about it.” In general, she advises that people plan and save over six to 12 weeks to make a big-ticket purchase. But that can take time, and sometimes you’re left scrambling for a new TV or refrigerator when yours broke at an inopportune time. Financing that purchase could qualify as a need.

“If you’re tempted to use one of these services then ask yourself, ‘Have I budgeted for it?’ If the answer is yes and you happen to see it for a steal of a deal before you’ve fully saved, then go for it,” she says.

Have you factored the monthly payment into your budget over the long run?

Making a budget is useful on its own, and there are plenty of apps and tools available to help you find the right program for your financial needs. But if you’re signing up for a long-term layaway program—some of which can stretch out over months and even years—you should immediately treat that payment as a fixed expense that is as important as rent or electricity. That way, you know exactly where your money needs to go so you can avoid late fees or penalties.

According to Michelle Schroeder-Gardner, founder of Making Sense of Cents, “people tend to spend more money when things are done in installments, because it can feel like you are spending less money.” Those purchases can add up over time, so it’s important to track exactly how much you owe, to whom, and when you owe it.

Can you afford to pay the money back sooner than the timeline you’ve been given?

Just like with a credit card, it can be helpful to pay more than the minimum amount due in order whenever and as often as you can, in order to chip away at your balance that much more quickly.

“Buying with money to be earned in the future is such a slippery slope,” Amanda Holden, writer and founder of Invested Development, warns, adding that she believes “gateway debt” might encourage less-than-ideal spending habits in the long run. Sometimes debt is inevitable, but it’s always smart to think about your plan to pay it off as soon as you can.

It’s also worth reading the fine print each company has about payment timelines, so you fully understand where you might have a little flexibility.

Do you understand the terms regarding late fees?

Schroeder-Gardner advises that you should also pay special attention to the billing dates on your purchase. “You do not want to pay a late fee,” she says, noting that each platform has a different fine print. While a platform’s approval process won’t ding your credit score, late payments may impact it. If you want to be sure your shopping hasn’t negatively affected your credit, check your credit report.

Smith also advises thinking about opening credit with these programs the way you would treat opening a new credit card. “Because these [programs] don’t check your credit, you have a better chance of getting approved,” she says. “They start you with a lower limit—they’re not going to let you buy a $2,000 electronic with it if you’ve never used it before. It is protected in that way and it doesn’t do a hard check of your credit, so it is better in that sense if you have the money coming in.”

Are you buying more—and more expensive things—than you actually need?

The holidays are a perfect time to think about the difference between cost and value. According to one survey, the average American who bought Christmas gifts spent $928.76 on holiday-related purchases in 2019. Given that, it can be tempting to split payments up so you can splurge on family and friends.

Smith hopes this is the year that people take the advice to “buy less than what you think you need” to heart. “We spend so much money on gifts and entertaining, all of these things we feel obligated to do because it’s ‘the reason for the season,’ but at the end, we always feel drained and wish we hadn’t. in January, the bill comes and you have to pay it!” Her advice is to use the rollercoaster of 2020 to re-examine your spending habits in general, no matter how you pay for it. And as she notes, your loved ones will understand.

“This is the best year to start to build boundaries with your family and friends,” she says. “Everyone has gone through a rougher time this year, so nobody is expecting the traditional gift-giving game.”