'Buy Now, Pay Later' Plan Borrowers Are Struggling With Debt, Data Shows

That doesn't bode well for those signed up for short-term payment plans.

Whether you do most of your shopping online, in stores, or a combination of the two, you've probably come across an opportunity to sign up for a Buy Now, Pay Later plan, or BNPL plan. BNPL plans let you pay for purchases over time rather than part with a larger chunk of cash at once.

Say you're buying a $200 kitchen appliance. It might be hard for you to cover that purchase in one fell swoop, so a BNPL plan will let you pay for it over what's usually a three-month period instead. And the upside of using one of these plans, as opposed to putting your purchase on a credit card, is that as long as you stick to your installment payment schedule, you won't rack up interest. With a credit card, paying off a balance over three months will mean paying some amount of interest on what you've bought.

But while BNPL plans may be convenient, they're not the best choice for everyone. And if you have debt already, you may want to steer clear of them.

BNPL plans and existing debt don't mesh well

A recent report by the Consumer Financial Protection Bureau found that BNPL plan borrowers had significantly higher usage across other loan products compared to those who aren't signed up for BNPL plans. But what's really alarming is that 18% of those with BNPL plans had at least one reported delinquency in another personal loan or credit account, compared to just 7% of non-borrowers.

Now, this isn't to say that signing up for BNPL plans is causing borrowers to fall behind on other financial obligations. Rather, it may be that people who are comfortable with debt (or resigned to it) may be more inclined to sign up for a BNPL plan. But if you're already in debt, these plans are actually not the best choice.

The great thing about BNPL plans is that they give you more financial flexibility to pay off your purchases. But if you already have debt, it means you probably shouldn't be making non-essential purchases until your loan or credit card balance is whittled down.

Of course, you might use a BNPL plan to cover an emergency purchase, and that's a little different. But if you're already struggling to keep up with existing debt obligations, then it stands to reason that you might fall behind on your BNPL plan payments, too. And once that happens, not only do you risk being slapped with interest and fees, but you also risk credit score damage.

Sign up with caution

The problem with BNPL plans is that they often push consumers to purchase things they don't need and can't actually afford. Sure, there are exceptions to this generalization, but often, people who are doing okay financially don't need to spread out a $200 purchase over three months. It's really all the same to them to pay for something like that in full.

Rather, BNPL plans, by nature, tend to appeal more to consumers who don't have a lot of cash at the ready and who don't have a lot of wiggle room in their budgets. But it's these same consumers who need to be really cautious about spending money on extras. So if you already have an existing loan or credit card balance you're trying to pay off, or, worse yet, you're behind on one, then it's probably best that you avoid signing up for a BNPL plan unless it's an expense you truly can't put off or avoid.