Should You Use a 'Buy Now, Pay Later' Plan for Your Holiday Shopping This Year?

It may be a good idea, but you'll want to proceed with caution.

Although we're still a number of weeks away from the actual holidays, now's the time when a lot of people are starting to get serious about shopping and planning. And if you're one of them, you may already have a list of gifts you need to buy.

If you don't have the money to pay for all of those purchases outright in the next couple of weeks, you have options. First, you could charge those purchases on a credit card and pay off your balance in time. But if you go that route, you'll accrue interest on any purchase you can't pay off in full (unless you happen to have a 0% interest rate credit card).

Another option you may want to consider is a buy now, pay later plan, or BNPL plan. BNPL plans have grown in popularity over the past few years, and they let you pay for purchases in installments. Usually, you'll fork over some money upfront and then pay the rest every couple of weeks over a two- or three-month time frame.

BNPL plans can be a good choice for consumers, especially during the holidays. But you'll need to be careful when signing up for one.

The upside of BNPL plans

BNPL plans let you pay off purchases over time without accruing interest. With one of these plans, you actually don't incur any penalties or fees unless you fail to stick to your payment schedule. And you can generally get approved for a BNPL plan on the spot.

The downside of BNPL plans

BNPL plans can get expensive if you don't manage to keep up with your payments, since interest and fees will then start to apply. And just as being late with a credit card payment can have a negative impact on your credit score, so too can a late payment on a BNPL plan drag your score down.

Should you fall back on a BNPL plan for your holiday shopping?

That really depends on your financial situation. If you need a little wiggle room while paying for larger purchases but are confident in your ability to stick to a short-term repayment plan, then a BNPL plan may be a good choice. Similarly, if you expect a lump sum of cash at the end of the year, then it could pay to opt for a BNPL plan.

Let's say you want to purchase a $400 item as a special gift for your child in mid-November, only you don't have enough money to pay for it in full at that point. If your employer has promised you a $1,000 cash bonus payable by mid-December, then financing that purchase via a BNPL plan may not be a bad idea. But if you're not sure where you'll get the money to cover your installment payments, then you should pass on a BNPL plan -- and the purchase itself.

In fact, as a general rule, it's really best to avoid any sort of holiday debt -- even if it comes from a place of wanting to make the holidays special for the important people in your life. And so you're better off sticking to gifts you can easily afford -- even if that means having to make changes to your list.