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How to avoid overspending at Christmas

How to manage your buy now, pay later habits over the festive season.

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As Christmas approaches, there’s a good chance you’re counting your pennies and wondering how to budget for the gifts you have to buy.

One obvious solution for many is the ‘modern day layby’ – otherwise known as ‘buy now, pay later’ (BNPL) schemes.

BNPL schemes are not like the old-school layby where you had to pay off your purchase in instalments before the shop would hand it over. Using a BNPL scheme enables you to buy the goods and take them immediately then pay for them in instalments without interest, providing payments are made on time and in full by the specified date. Interest and fees could be charged on any residual balance, so you should always check the terms and conditions before going ahead.

Not surprisingly, BNPL schemes are very popular with Australian shoppers. According to findings from the Roy Morgan Digital Payment Solutions Currency Report January 2019, 1.59 million Australians used a BNPL service in the 12 months up to January 2019 and the industry is worth around $903 million.

But BNPL schemes may make it too tempting to overspend on gifts, which you could end up paying off weeks or months later depending on the payment scheme.

Why Buy-Now-Pay-Later services can be problematic at Christmas

Around a quarter of respondents in a 2018 MOZO survey found that certain BNPL services had led to financial stress, indicating more than half of users feel influenced to buy things they wouldn’t normally purchase.

In fact, ASIC’s 2018 review of BNPL found that one in six customers had either become overdrawn, had delayed paying their bills or needed to borrow money from family, friends or another loan provider in order to meet their BNPL financial obligations.

At times like Christmas when the pressure is on to buy gifts for potentially lots of friends and family members, the temptation to spend knowing you don’t need to pay immediately can make it easy to over-extend yourself.

How to use buy now, pay later services responsibly

Here are some tips for using these services and not getting into financial strife over the coming silly season.

1. Stick to a budget.

While you know logically that your purchase might be hundreds of dollars, it’s easier to focus instead on the ‘first instalment’ payment and psychologically convince yourself into thinking you’re not really spending that much. Solution? Have a gift budget and don’t go over it, even if you’re using a BNPL scheme.

2. Use a debit card.

Some popular BNPL schemes claim they don’t charge you interest, but if you’ve linked your account to a credit card and miss a payment, you’re still accumulating interest charges on your credit card if you’re not paying the card off in full during the interest-free period. Instead, consider linking a debit card to the BNPL scheme and only buy items if you know you have the funds in your account to make those fortnightly payments.

3. Create payment reminders.

Whether you use an app or the calendar on your phone it’s easy to set up payment reminders so you make your repayments on time.

4. Don’t buy what you can’t afford.

You’re busy, you’ve left it until the last minute to buy presents and you’re under pressure. But buying a heap of presents you can’t afford is going to leave you with a holiday hangover no one wants. Stop and think whether you really need to spend hundreds on presents if it’s going to leave you with months of debt.

This article is intended to provide general information of an educational nature only. Terms, conditions, fees charges and credit criteria apply. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication. We do not recommend any third party products or services and we are not liable in relation to them. Any links to third party websites are for your information only and we do not endorse their content.

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