Need to know
- Frontline advocates say more and more people are struggling with buy now, pay later (BNPL) debt
- If you're having trouble making repayments, approach the company for hardship assistance or go to a financial counsellor
- It's better to ask for help than to resort to other short-term loans
Buy now, pay later (BNPL) services have exploded in popularity in recent years, but accompanying this rise has been a growing number of users who have found themselves in debt due to the easy credit these services provide.
If you're one of these people and are struggling to keep up repayments to Afterpay, Humm or any other provider, there are concrete steps you can take to give yourself some respite and take control of your debts.
How bad is BNPL debt and what can it mean for your finances?
If you're finding it hard to meet the repayments for a BNPL service you've used to make a purchase or pay a bill, you're not alone.
In June, CHOICE's Consumer Pulse survey found 76% of BNPL users surveyed had struggled to make repayments, or had cut back on essentials, sought advice or taken out an extra loan in order to meet the demand for money from providers.
Meanwhile, financial counsellors who work on the frontline to support people with money troubles say they're seeing more and more clients come to them for help with BNPL debts.
ASIC found that one in five BNPL users had cut back on, or went without, food and other essentials in order to make repayments on time
Their observations echo 2020 research by the Australian Securities & Investments Commission (ASIC), the corporate regulator. ASIC found that one in five BNPL users had cut back on, or went without, food and other essentials in order to make repayments on time.
There's also the fact that the biggest BNPL players have derived growing profits from late fees. These increased 38% over a year to hit $43 million in 2018–19, suggesting there's no shortage of people who have struggled with these services.
'Unhealthy spending behaviours'
ASIC concedes that BNPL can provide financial flexibility, but the regulator also argues that it has the potential to encourage "unhealthy spending behaviours," reporting in 2021 that BNPL users were more likely than the general population to experience financial stress.
On top of potentially causing people to go without food or other essentials and take out further loans, this stress-inducing debt can also spoil your attempts to get access to more substantial amounts of credit.
In June, the national lending watchdog, the Australian Prudential Regulation Authority (APRA), clarified that banks should factor in an individual's BNPL debt when choosing to give out loans and mortgages – yet another reason to repay these debts as soon as possible.
What should you do if you're struggling with BNPL debt?
1. Talk to the provider yourself
If you're currently finding it hard to scrape together enough to repay your BNPL provider, the consensus from experts is to make the company itself your first port of call.
"With any debt, people put their head in the sand… and think, 'I don't want to talk to the bank or the organisation,''' says Anglicare financial counsellor Lindi McMullin. "But, in fact, that's the first thing they should do."
A search by CHOICE found that each of the eight largest BNPL providers – brands such as Afterpay, Zip and Klarna – provide guidance for customers struggling to pay for their services, often in a section titled 'Financial hardship' (or similar) on their website.
Australia's largest BNPL brands are all part of a voluntary code. This says they must respond to your [hardship] request within 21 days and freeze any late fees while it's considered
From here, depending on the provider, users are invited to fill out an online form or contact the company directly by phone or email to be considered for its hardship policy.
McMullin says that, whichever way you choose to contact your provider, you should include the term "financial hardship" in your initial message to make it clear to the provider that you're struggling.
Australia's largest BNPL brands are all part of a voluntary industry code. This says they must respond to your request within 21 days and freeze any late fees while it's considered.
Depending on the provider, hardship policies may include a pause or waiving of late fees, reduction or deferral of instalments or some other sort of payment plan to help you get back on track.
2. Go to a financial counsellor
Unfortunately, though, the evidence suggests some BNPL businesses have proven less than effective in providing support to customers in financial strife.
A 2019 survey by Financial Counselling Australia (FCA) of support workers resulted in the hardship policies of BNPL providers being rated worse than those of banks and debt collectors.
Financial counsellors tell CHOICE they've seen providers pick up their game since, but FCA sector advocate and counsellor Deb Shroot says companies still vary in assistance offered and she continues to see poor performers.
The evidence suggests some BNPL businesses have proven less than effective in providing support to customers in financial strife
"We tend to get a lot of calls, because people try to get in touch with the BNPL companies because they've been unable to pay and they haven't been successful in getting a response," she says.
Financial counsellors such as Shroot and McMullin work for locally based not-for-profits and will help those struggling with BNPL debts and can even advocate to the provider on the user's behalf.
"We ask people a lot of questions to ascertain their actual financial positions," McMullin says. "We can [also] contact [the lender] and say, 'This person is in financial hardship and I'm going to talk to you about them.'"
How can a financial counsellor help?
With the consent of the client, the financial counsellor can explain to the creditor why the user is unable to keep making repayments and make the case for a new payment plan.
As well as assisting with BNPL and other short-term loans, financial counsellors also often help clients get on top of more substantial debts stemming from long-term loans.
To get in touch with a free financial counsellor, contact the National Debt Helpline on 1800 007 007 or through their website, ndh.org.au, where you can fill in a web form or connect with an operator on the live chat function.
We don't care how they got into trouble, we just want to try and help them get out of troubleLindi McMullin, Anglicare financial counsellor
From here, those in need of support will be connected with a financial counsellor in their local area.
McMullin, who is based on the NSW North Coast, says that when it comes to BNPL debt, it's never too early to enlist the support of a financial counsellor. In most cases, she says, she's able to help people get back on their feet.
"We would love to… encourage people to go to a financial counsellor," says McMullin. "It's a very personal subject, finance, but… we don't care how they got into trouble, we just want to try and help them get out of trouble."
What NOT to do
Just as there are effective processes you can follow to improve your BNPL standing, some strategies for deleting debt can only land you in deeper trouble.
Shroot says anyone lagging behind on their repayments should avoid falling into a "debt spiral" by taking out more loans to meet the demand of immediate repayments.
Don't take out more credit. Don't take out more BNPL, try and stop the cycleDeb Shroot, FCA advocate and counsellor
"Don't take out more credit," she warns. "Don't take out more BNPL [to cover expenses], try and stop the cycle." She says she comes across clients who are using as many as eight BNPL accounts at once to cover their life expenses.
Dangerous levels of interest
CHOICE's own investigations into other short-term loan schemes also suggest that turning to these often predatory forms of credit to cover BNPL liabilities is a bad idea.
If you're struggling with BNPL debt, it's all the more reason to approach the provider or a financial counsellor – before taking a turn down a debt spiral.
Stock images: Getty, unless otherwise stated.