Yahoo Finance 'Dangerous' cost-of-living trend puts 'huge strain' on Aussie budgets
Buy now, pay later debts are being prioritised over essential bills and needs, sparking a serious warning.
New research has revealed the lengths Aussies are going to in order to pay off their buy now pay later (BNPL) debts. Services like Afterpay, Zip, PayPal, and Klarna have grown in popularity for many across the country, especially as the cost-of-living crisis continues to squeeze everyone's wallets.
But some Aussies are prioritising paying off their debts over eating while others have decided to pay off a BNPL bill over another essential invoice. Sarah Megginson, personal finance expert at Finder, said Aussies are turning to BNPL services to live beyond their means.
Lauren Grewal told Yahoo Finance she did just that after first using Afterpay at 25.
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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.”
Her BNPL debt peaked at $2,000 and she found it difficult to pay it all back.
“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," she explained.
Damaging cost-of-living trend
New Finder data has revealed one in eight BNPL users have overlooked an energy bill to service their BNPL debt, while 12 per cent have skipped a meal to save enough money to be debt-free.
A whopping revealed 29 per cent of users have missed another bill to afford their repayments in the past 12 months.
Of those users, 6 per cent skipped a mortgage repayment to get their BNPL debt to zero, 7 per cent missed a personal loan repayment, and 3 per cent prioritised a buy now pay later debt over their kids' school fees.
Megginson is worried that Aussies aren't organising their priorities properly.
“Some are prioritising their BNPL payments over other necessities such as food and accommodation costs, which may have lesser immediate consequences," she said.
“However it’s a dangerous trend as defaulting on loans could lead to a much bigger financial headache down the track.”
“BNPL was intended to be a short-term financing option that made it more manageable to pay for bigger purchases, or to manage your cash flow, by spreading payments out over a few weeks or months," she said.
“But these days, it can be used on everything from a cheeseburger meal to a $10 online purchase – so it’s facilitating over-spending, which has become a huge strain on budgets.”
BNPL is being used for essential services
Victorian resident Michael Stevens first got into BNPL because he couldn't immediately afford his car repayments. But it turned into a very "slippery slope".
“Originally, it was a one-time thing, but that’s slowly progressed to using them all simultaneously. The rising living costs have made it hard to afford the most basic things. But it’s a trap; it’s not extra money. I tend to think of it as a short-term loan," he said.
This slippery slope has led some Aussies to use BNPL services to afford groceries or fuel.
But all is not lost. Grewal told Yahoo Finance how she managed to pay off her debts and close her buy now, pay later services.
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.”
Afterpay claims BNPL can help Aussies save
Afterpay claimed in its 2024 Economic Impact report that 24 per cent of Aussies said BNPL services like theirs helps them save more.
The most popular BNPL company in Australia added that having immediate access to cash can reduce the stress of sudden large expenses without having to dip into their savings.
The report stated that 34 per cent of customers claimed BNPL helps them improve financial management while 20 per cent of users said it helps them manage the impact of inflation.
Aussies have been warned if they want to engage in one of these services to be on top of their finances.
“Many people like using BNPL because you’re not credit checked upfront. However, consumers must be aware that they charge monthly and late fees, and any debt will appear on your credit rating. A bad credit score will haunt you for five years,” Browne explained.
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