Many people are using credit cards to pay off their buy now, pay later (BNPL) debt, stoking fears of a cascading “debt trap” as cost of living pressures continue to bite.
Of those who have a BNPL account, about half told a survey of almost 1300 people conducted on behalf of rate comparison site Mozo that they have accounts with more than one BNPL provider, such as Afterpay or Zip.
More consumers are at risk of getting caught in cascading debt Credit: Istock
More than two-thirds of those users who also have a credit card told the survey that they have used their credit card to pay off their BNPL debt. BNPL users with a credit card say they have an outstanding debt of $1,059, on average, compared to an outstanding BNPL debt of $725 for those without a credit card.
BNPL platforms allow purchases to be made immediately, with the money repaid to the provider, in most cases, in four equal instalments. Most earn their revenue from fees paid to providers by merchants and from the fees paid by purchasers who miss a repayment.
Rachel Wastell, spokesperson for research house Mozo, says it is dangerous to pay off BNPL debt with a credit card, as you risk incurring interest on the credit card debt if the card debt is not paid off by the due date.
“That means what could have been an interest-free BNPL purchase can end up costing a lot in credit card interest, especially as half of the credit cards on our database charge an interest rate of 19 per cent a year or higher,” Wastell says.
‘If you have multiple debts, using one to pay off the other can be dangerous, especially if you end up taking on more debt.’
When those surveyed were asked how much debt, other than mortgage debt, they accrued during 2023, BNPL users who had never used their credit card to pay off their BNPL debt had taken on just over $6,000 of debt.
That jumped to almost $9,400 for those who said they used their credit card to pay off BNPL debt.
Fears as more shoppers use credit cards to buy now, pay later
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02.04.2024
Many people are using credit cards to pay off their buy now, pay later (BNPL) debt, stoking fears of a cascading “debt trap” as cost of living pressures continue to bite.
Of those who have a BNPL account, about half told a survey of almost 1300 people conducted on behalf of rate comparison site Mozo that they have accounts with more than one BNPL provider, such as Afterpay or Zip.
More consumers are at risk of getting caught in cascading debt Credit: Istock
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