Hello my shopaholic friends! 

Let us have a frank conversation about the ‘buy now, pay later’ phenomenon that has swept up our country faster than the Utah Saints – Something Good running man!! 

‘BUY NOW, pay later’.  That’s all we see, right?  BUY NOW.  But, what is ‘pay later’ really going to cost you?  

I know what you’re thinking, “Well, nothing, Shaun.  It’s 4 equal payments adding up to the full purchase amount.”  Oh, so it’s a free service, yeah?  These big fintech companies are creating a service to better the lives of Tommy-Hilfiger-wearing Australians, from the kindness of their hearts? 

Haha, ok ok.  Yes, I am being facetious.  And, no, I don’t think any of you are stupid.  We all know that the stores pay a percentage of their retail price to the fintech company that provides the service.  I just like to spin a little, rant-y tale wherever I can. 😉 

And the big fintechs don’t care.  I mean, take a look at the 30-year-old owners of Afterpay who just sold the company for a staggering $39 Billion!!  Those guys are still laughing, so don’t feel sorry for them. 

Let’s now look at you.  What is the cost to you, personally? 

We all know what money buys: Your food, it pays your rent, your kids’ school lunch and more.  Simple and easy.  However, it is the idea that we buy things now and pay later which attracts so many people.  That is the core reason why credit cards exist – to get us things today we just cannot wait until tomorrow to buy.   

Fun Fact: Did you know that banks count on making their credit card service profits from all the people with outstanding balances on cards – which is the vast majority of people with a credit card?  Those (very few) people who pay their cards down each month are not the people the banks make money from.  In most cases, the banks can even lose money on these people because of the support services that go into them.  In fact, if every single person used their credit card correctly, and paid off their balance every month in the interest free period, then banks would actually stop offering the credit card service!! 

OK, so clearly my stance on spending money from the future to get something today is quite clear.  And, if it’s not so clear to you, then you really need to read MONEY, THE BOOK (shameless plug achieved 😉 ).  I don’t like it, not only because I firmly believe we should only treat ourselves to things when we have earnt the reward, but also because of the devastating effect it can have on your life. 

Let me explain what I mean. 

Always be mindful of your credit score.  ‘Buy now, pay later’ services are not looked at kindly on your credit file – it is very much like getting a Payday or Cash Converter loan.  What you are showing a future creditor (say, for a house, or a car, or a business loan) is that you are reckless with your money, that you live outside your means and that you do not have the ability to save or budget.   

And that is just the first issue!   

The next is how our credit reporting now works within Australia – it is all based on making payments on time.  Now, I’m going to guess that if you’re using this service, you’re tight on cash.  And if you’re tight on cash, there’s a possibility you might not be able to make every payment on time.  So, here’s the important part – if you miss any payments, these will be recorded on your credit file for 5 years! Now, is it reeaalllyyyy worth that pair of Gucci socks today, when you may have to “pay” the consequences for 5 years? 

But let’s face it, you’re going to use this system anyway, because good advice is only heard in hindsight, right?  Haha.  Therefore, how do we use these payment options in a good way? 

Number 1:Avoid fees 

‘Buy now, pay later’ is excellent if you are not getting hammered by those nasty fees.  Many do.  I am sure countless customers have missed at least one payment and had to pay the late fee.  Those can add up over time and costs quickly get out of hand.  Be smart.  Make payments on time and avoid that!  

Number 2:Set your limits 

Here’s an easy money-saving concept – have a budget and stick to it.  With a budget, you know exactly how much you are spending, allowing you to save money for the future.  But, if you are having problems sticking to your budget, don´t use this system.  Instead, setting your limits is the key. 

Number 3:Carefully track your spending 

Tracking your spending is essential for saving money in the long run.  However, remember to track all (!) your spending – don’t forget those credit and debit cards… and how much you spend on uber eats on lazy evenings!  Impulse buying?  It can happen (even to the best of us), but, by tracking your total spending, you know how much you have available to spend and can keep an eye on impulse buying.   

Number 4:Do not repay ‘Buy now, pay later’ loans with your credit card  

The golden rule here: Don´t fill one hole by digging another.  Pay off your loan or credit card with your income, instead of getting more credit – thus, leading to more debts in the end.  It defeats the whole idea of an interest-free loan if you then have 18% interest on your credit card!  Easy to avoid that.    

Number 5Be the boss – Be accountable for it  

Finally: Know what you are signing up for.  Every ‘Buy now, pay later’ company has different options.  Inform yourself before you hand over your details.  And make sure to meet all regular payments.  Avoid falling into the credit trap by diarising your repayments.  Better yet, set up a recurring payment. 

Your money is a tool.  By being your own clever money manager, you can use it wisely now for your own benefit in the future. 

Shop with tomorrow’s brain, not just tomorrow’s eyes.  

 

Love you all,
Shaun Fox