While loans or buy now, pay later services (BNPL) can seem like an easier way to cope with the holiday season and back-to-school/work expenses, experts are warning that it could be the start of an ongoing debt trap.

The Financial Rights Legal Centre and Mob Strong Debt Help are urging consumers to be careful when choosing holiday debt.

“We often see cases of people who find themselves in difficulty upon realising they cannot meet their loan obligations on top of their living expenses,” said Financial Rights Legal Centre chief executive Karen Cox. 

“Many people also end up in financial hardship because they take out loans to cover existing repayments.

“It’s important to know that help is available, if you end up in these circumstances.”

A recent report by the Australian Securities and Investments Commission found that 21 per cent of Aussies using BNPL have missed a payment in the last 12 months and have, as such, been slapped with late fees.

Moreover, 20 per cent had to cut back on essential expenses, including food, to meet the repayments, while 15 per cent had to take out a loan to cover their existing debt.

Financial Rights Mob Strong coordinator Amanda Cameron said there are important steps people could take to help avoid the pitfalls of debt.

“It’s always best to try to stick to a budget to manage holiday period expenses. If you really need to borrow, try to keep the amounts to a minimum to ensure it’s as easy to pay back as possible,” she said.

“If you do use the option of a loan, always budget to make sure you can afford each instalment and ensure that each instalment won’t be deducted from your bank account before you receive your next pay.”

Tips to reduce risks when using BNPL:

• Write up a shopping list and budget for it;
• Manage your accounts – keep to one BNPL account you can keep track of;
• Avoid taking out loans to keep up with payments;
• Line up your payments with your payday;
• If you can’t meet a payment, then contact the BNPL provider for financial hardship assistance.

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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