Between Black Friday deals and Americans’ collective credit card debt reaching more than $1 trillion, you may be looking for alternative payment methods this holiday shopping season, including buy now, pay later plans.
Buy now, pay later options accounted for around $6.4 billion of online spending in October, according to Adobe Analytics. But while they may offer attractive benefits, such as interest-free payments, they aren’t necessarily better or safer than using a credit card.
“BNPL is still debt,” Ted Rossman, Bankrate’s senior industry analyst, tells CNBC Make It. “And sometimes these plans encourage people to overspend.”
Buy now, pay later payment options essentially allow you to take out a microloan to make a purchase, then pay back that loan in installments. Instead of charging $100 to your credit card at once, you might pay a BNPL provider $25 a week over six weeks, for instance.
While that may seem like a deal, if you’re using multiple buy now, pay later plans, the payments can really add up, Rossman says.
If you’re choosing between using a credit card or a buy now, pay later option, here’s how to decide which is right for you.
Buy now, pay later plans versus credit cards
When deciding between a buy now, pay later plan or a credit card, one major deciding factor is how quickly you’ll be able to pay off what you’re buying.
“If you need just a little bit of extra time to pay off your purchase, a typical pay-in-four BNPL loan can be great because it gives you a few additional weeks to pay your purchase off, typically interest-free,” Matt Schulz, LendingTree chief credit analyst, tells CNBC Make It.
These plans can also provide a “built-in light at the end of the tunnel,” says Rossman. Since you pay in installments, you’ll typically know exactly when you’ll be finished paying off your purchase. With credit cards, you’ll need to take a more proactive approach to paying down your debt.
“However, if you think you’re going to need more time, a credit card might be a better choice because it gives you the flexibility of being able to choose how much you want to pay each month, assuming you hit the minimum,” Schulz says.
Ultimately, Schulz and Rossman agree that credit cards are usually the way to go as long as you’re able to pay off your balance in full and avoid potentially costly interest charges.
When used responsibly, credit cards can help you boost your credit score and come with rewards that can be used to earn cash back or points for travel. They also offer a host of protections, such as fraud protection and extended warranties.
“The right credit card, used wisely, can make a major difference for your bottom line,” Schulz says. “Rewards can extend that holiday budget and consumer protections mean that if something arrives broken or needs to be returned, it won’t be a big headache.”