Household debt is currently at record highs. The usual suspects—credit card balances and mortgages—have been covered heavily in the media, but some people have been wondering how the philosophy of “buy now, pay later” might fit into the story.
Last fall, Senator Mark Warner (D‑VA) likened the rise of buy now, pay later (and other fintech) services to the lead‐up to the financial crisis. However, when considered alongside the data that is available, it appears clear that there is no such risk. …
The Consumer Financial Protection Bureau (CFPB) reported the five largest buy now, pay later companies had facilitated $24.2 billion in spending in 2021. While it’s possible some of this spending was linked to credit cards, let’s assume for simplicity that this represents an isolated layer of debt. Under that assumption, if we compare these numbers with the Federal Reserve’s reports, it becomes abundantly clear how small the industry still is: buy now, pay later would have accounted for just 0.04% of consumer debt in 2021 (Figure 4).
[I think this depends on the context of the strategy. I have used it — sparingly — to add value to my residences with major upgrades, as long as it remained interest-free. That requires significant discipline, mainly in ensuring that the payments get made on time and don’t trigger the interest penalties, which come at credit-card rates. I have also made sure to keep significant cash reserves when possible during the lending period. As long as you handle one such credit line at a time, avoid interest, and ensure that the purchase adds value to your home or other significant assets, it’s a good strategy. Otherwise, it’s a time bomb. — Ed]
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