Yahoo Finance Afterpay spiral pushed debts up to $25k until these Aussies took back control
Buy now, pay later schemes are offered everywhere, but there's a dark side to delaying accountability for your spend.
Have it now, pay for it later – what’s not to love? Buy now, pay later (BNPL) services like Afterpay have become ubiquitous with modern money management, with data revealing almost half of Australians have used a buy now pay later service in the last 6 months.
Being able to pay for your purchases in four equal interest-free instalments sounds like a nifty way to manage cash flow. But, there’s a darker side to BNPL that leaves many users with debt they can’t get on top of.
Yahoo Finance spoke with three Australians who have broken up with buy now, pay later schemes for good to find out how they did it, so you can too.
Do you have a story to tell? Contact yahoo.finance.au@yahooinc.com
Can I pay with Afterpay? Every purchase 'unplanned'
Lauren Grewal began using Afterpay when she was around 25, and it quickly spiralled into a cycle of spending that was hard to break.
She and her husband had a fortnightly budget where each of them got money to spend – but using Afterpay complicated Lauren’s management of her share.
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“I kept telling myself, 'if I use Afterpay, I can make smaller payments and not use my whole fortnightly budget, [so I can] still buy my coffee every day',” she said. “This went on for years.”
Lauren had up to $2,000 owing on her buy now pay later account at one time, and found that paying it back was hard to get on top of.
“I’d rack up the amount and end up having to sell clothes or [household] things to make a quick splash of cash that just paid my [balance] off.”
For Lauren, breaking the buy now pay later cycle meant changing her social media behaviour.
“I started to switch up the social media accounts I was following,” she said. “I switched from the very consumer-heavy influencer accounts to budgeting or thrifting. It made such an impact.”
To combat her buy-now-pay-later-fuelled spending behaviour, Lauren began putting $30 each week aside into a “guilt-free spending account” which helped to fence off her consumption.
Once she paid off her outstanding buy now pay later balance, she closed the accounts and deleted the app.
“I feel like I’m in control [now],” she said. “I don’t have this stress that I need to sort and keep on top of.”
'Panic' as Afterpay started chasing debt
Melanie, 48, paid down her revolving buy now pay later balance by addressing her FOMO-fuelled spending (fear of missing out) and interrogating what made her happy.
She initially began using buy now pay later as a way to “finally catch up on items that I felt were needed in my life without the stress of a larger one-time payment.”
Eventually, Melanie admits “the novelty wore off”, leaving her worried that she couldn’t keep up with her repayments.
“I went into a panic state as they started chasing my outstanding monies owed,” she said.
Her break up with buy now, pay later was fuelled by a combination of two things: a fear of not meeting her repayments and “looking around and realising that I was missing out on life”.
“All I had were material things to my name. I bought all the things I thought I needed to appear beautiful to others," she told Yahoo Finance.
Melanie put a plan into action to change her spending habits, starting with an Excel spreadsheet.
“I would list every item I wanted and categorise it under ‘item’, ‘description’, ‘cost’, purpose’, and ‘want or need?’ If the item cost $25 or less I would buy it without hesitation using only cash, [but] for any item over that I would wait 48 hours and see if I still felt the same way about it," Melanie said.
She also took action to remove future temptation.
“I sent an email to Afterpay explaining that I was having trouble with self-control and wanted to close my account ASAP," she said.
Using buy now, pay later as a payment method makes it extremely easy to make snap purchase decisions and defer the consequences to later.
Melanie believes buy now pay later services created “budget distortion” that made her “spend at least 3 times more than [she] might have otherwise.”
She is now BNPL-debt-free and says she would “absolutely never” open another account.
From $25,000 with Afterpay to a full emergency fund
Lauren P embarked on a debt-free journey a couple of years before her thirtieth birthday, which she cited as “part of [her] self-love journey.”
The now-34-year-old first started using buy now pay later services after being “enamoured” at the ability to split purchases into smaller chunks.
“But all of a sudden I had five purchases on [the] account, and it was over $100 a fortnight to pay them all off.”
Psychologically, buy now, pay later payment structures are very attractive to our decision-making processes.
Breaking a $100 purchase up into four $25 instalments can mean our brains view the transaction as less significant than it actually is. All we need to worry about in the immediate future is that initial payment.
This can mean we hand over our money much faster than when assessing the whole price at once.
Lauren explained that she sometimes used buy now, pay later services in the absence of an emergency fund. In total, she had spent $25,000 using Afterpay.
“A lot [of the purchases] were purchases I had to make,” she said.
“I remember a couple of lifesaver situations, a $1,000 car service [and] a new fridge when mine died.”
But she admitted much of her debt came from non-essentials and cited social media as a driver of her spending.
“I would see things advertised on Instagram and almost immediately I’d pressed ‘buy’ and then I had a debt for it," Lauren said.
But seeing her fortnightly payments come out evoked a “visceral response”, sparking a realisation she wouldn’t have made the purchases at all if she had to pay 100 per cent of the cost upfront.
Lauren chipped away slowly at her debts - BNPL and otherwise - and has now managed to save up to $2,000 for an emergency fund.
She has also closed down her Afterpay account and said she would never use the service again.
“I now pay for all of my purchases up front,” she said.
“I can’t go back there, I have better money habits than that.”
If you're feeling overwhelmed and need help dealing with financial stress, you can contact free advice and counselling from the National Debt Helpline. You can call 1800 007 007 between 9.30am and 4.30pm Monday to Friday, or reach out to Mob Strong Debt Help on 1800 808 488.
