How to avoid a debt hangover this Christmas shopping season
Putting Christmas presents under the tree will be more difficult for Australian families this year.
Job losses, economic hardships and a renewed focus on saving rather than spending are prompting consumers to buy now and pay later for services like Afterpay and Zip Pay to cover the cost of Christmas, reveals one study.
And while these services allow buyers to space out payments over the next year, the potential for a post-Christmas hangover is real.
The total amount of credit extended in the buy now, pay later industry has almost doubled in 12 months, according to a recent report by the Australian Securities and Investments Commission.
In particular, the number of BNPL transactions increased from 16.8 million in fiscal year 2017-18 to 32.0 million in fiscal year 2018-19, an increase of 90%.
The report also finds that one in five consumers miss payments.
After payment Signs an average of 20,500 new customers each day in the fourth quarter, with financial results showing the company racked up $ 69 million in late payment fees.
Shoppers are also drawn to clever offers.
Zip Pay, for example, just launched a 10% cash back offer, up to $ 30 per payment, for customers who purchase products from participating retailers on Saturday in December.
Adelaide man Sam Hassan has been purchasing Christmas gifts through BNPL services for his family in recent weeks. He has also bought furniture this way in the past two months.
Although he admits that it would be easy to get into debt using these services, he is careful to add the repayments into his bi-monthly budget.
“These services are practical, but you have to be vigilant about reimbursements,” warns Mr. Hassan.
He is by no means alone. COVID-19 closures have resulted in unprecedented demand in retail shopping, and now consumers are more confident buying items online, according to IBISWorld research.
“With bank accounts drying up, more and more consumers are likely to turn to BNPL options. The ability to shop now and pay later is very attractive to consumers in financial difficulty, ”said Yin Yeoh, senior industry analyst at IBISWorld.
BNPL has been a thorn in the side of the banking industry, prompting major players to launch a range of discounted credit cards in recent months.
Heritage Bank, for example, has a 12-month interest-free offer for new and existing customers. The big four banks have implemented similar offers.
Heritage Bank CEO Peter Lock said credit cards still have an important role to play despite the growing popularity of BNPL’s services.
“Buy now, pay later services sound attractive, but miss any payment and late fees can quickly add up. Plus, there’s usually no credit check to make sure you can pay off the debt you’re locking yourself into, so you can quickly find yourself over your head if you’re not careful, ” did he declare.
How to avoid a festive hangover
- Write a list – Plan exactly what you need to buy before you hit the stores to protect yourself from overspending
- Budget your finances early – Regular bills and payments like mortgage, rent and utilities don’t take vacation breaks, so assess financial obligations and put funds aside early
- Read the fine print – If you are using BNPL, read all the terms and conditions and be sure to calculate what your financial commitment will be to ensure that the monthly payments are within your budget
- Pay on time – The Christmas hustle and bustle can be a huge distraction, so try setting up direct debits or setting due dates to avoid late fees.