Should you buy now and pay later to go back to school? | Smart Change: Personal Finance

Jackie Feeling

Inflation has been hurting family budgets all summer, and the last item to be hit hard is school supplies.

According to the National Retail Federation, which released its annual back-to-school survey in July 2022, shoppers were feeling the pressure, cutting back on spending in other categories and working longer hours to make ends meet.

They’re also looking for ways to raise their cash even more, but shopping mall sales and piece coupons aren’t the only options anymore.

Some turn toBuy now, pay later, a type of payment plan available at most major retailers, to break up back-to-school purchases, according to the survey. Although BNPL plans can come with no interest and no fees if you pay on time, they are still risky, and there may be better ways to manage your cash flow.

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How do BNPL payment plans work?

BNPL plans vary by service provider, but they all break your purchases into smaller installments, which you pay off over time.

The most popular plan is the Pay on Four plan, which is offered by almost every major BNPL provider. With the pay-by-fours system, your purchases are divided into four equal payments. You typically make the first payment at checkout, with the remaining three payments automatically repaid with the original payment method every two weeks until you pay in full.

For example, let’s say you have a shopping cart that totals $600. You’ll pay $150 at checkout, then three remaining payments — $150 each — over the next six weeks.

Popular BNPL Providers Like Affirm, Afterpay, and Klarna don’t charge interest for using their four payment plans, so if you’re paying on time, there’s no extra cost. If you miss a payment, some providers charge a fee, which increases the cost of your purchase.

BNPL Options are integrated directly into retailer websites, such as Target, Staples, Best Buy, and Walmart. When shopping online, you may see the option to use BNPL at checkout. If you sign up, you’ll fill out a short application, which doesn’t involve a difficult credit check, so there’s no risk to your credit score.

Approval decisions are instantaneous and may depend on factors such as the funds available on your debit or credit card, the cost of the purchase, the store you shop at and any previous history you have with the provider. Credit score is not usually a determining factor in your application, so if you have fair or bad credit (689 credit score or less), you may still qualify for a BNPL.

You can also shop in person by downloading a BNPL virtual card from the provider’s mobile application, which you scan into the registry.

Should you use BNPL for school supplies?

Robert Bertman, a certified financial planner in Clayton, Missouri who works with families, says many of his clients have used BNPL, and while it’s not automatically a bad thing, he urges caution.

Since smaller premiums make it seem like you’re spending less than you’re actually spending, it’s easy to overspend.

“It’s a psychological trick,” Bertman says. “It’s compelling as trying to make things more affordable, but it can get people to spend more than they intended.”

He recommends keeping the total cost of the purchase front and center by asking yourself: If you could pay now, would you? Or is there another place you would prefer to put this money?

Andrea Woroch, a consumer finance and budget expert based in Bakersfield, Calif., says she sees that people run into problems when they try to manage Multiple BNPL Plans Once.

Although the payments are often small, they do add up. And with more than one plan at a time, it’s easy to get left behind or increase your account size, which can mean late fees from your BNPL provider and penalty fees from your bank or credit card company.

If you want to use the BNPL, Woroch recommends saving it for one basic back-to-school purchase that might be hard to cover completely, like a laptop or tablet. Just make sure you can afford the premiums.

Other ways to save for back to school

If you’re looking for more ways to lighten the load of back-to-school shopping, Woroch’s top tip for parents is to shop at home first.

Reusing old folders, half-used laptops, forgotten folders and any pens and markers lying around saves more money than you think. It can also help children learn the importance of money management.

“I know kids love having completely new things, but this is a really good opportunity to teach them how to budget,” Woroch says. Explain to them, ‘If we reuse this backpack, we can get those sneakers you really want. “

Plus, by delaying your shopping, you’ll miss the peak of the back-to-school season. When you go to restock, you’ll likely find bigger discounts, because retailers will try to clear their inventory.

For parents looking to cut spending across the board and make room for seasonal expenses like school supplies, Bertman recommends calculating transactions, not dollars.

For example, customers are often advised to reduce their weekly trips to the grocery store. Although the price of the trip goes up, the monthly spending on groceries goes down, because there is less chance of overspending.

“I don’t really know anyone who goes through the store without adding extra stuff to their cart,” he says. “The more we visit somewhere, the more likely we are to end up with things we didn’t need.”

Start by figuring out how many times you swipe your card per day — morning coffee is one, grocery store two, dinner order is three — and then reduce by one. At the end of the month, you can apply the savings to back-to-school shopping.

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