Between Black Friday sales and Americans surpassing $1 trillion in total credit card debt, you may be looking for alternative payment methods this holiday shopping season, like buy now, pay later plans .
Buy now, pay later options accounted for approximately $6.4 billion in online spending in October. According to Adobe Analytics. However, while they have attractive benefits such as interest-free payments, they are not necessarily better or safer than using a credit card.
“BNPL remains in debt,” Ted Rothman, senior industry analyst at Bankrate, told CNBC Make It. “And sometimes these plans encourage people to overspend.”
The Buy Now, Pay Later payment option essentially allows you to purchase using a microloan and then repay that loan in installments. For example, instead of charging his credit card $100 all at once, he can pay his BNPL provider $25 every week for six weeks.
This may seem like a good deal, but if you have multiple “buy now, pay later” plans, your payments can actually add up, Rothman says. .
If you’re choosing between using a credit card or the buy now, pay later option, here’s how to decide which is right for you.
When deciding whether to buy now, choose a pay later plan, or use a credit card, one of the big deciding factors is how quickly you can pay off your purchase.
“If you need a little more time to pay off your purchases, a regular four-payment BNPL loan is the way to go. It takes a few extra weeks to pay off your purchases and is usually interest-free,” says Matt. . Schultz, chief credit analyst at LendingTree, told CNBC Make It.
These plans can also provide “built-in light at the end of the tunnel,” Rothman said. Because you pay in installments, you usually know exactly when your purchase will be paid for. Credit cards require you to take a more aggressive approach to paying off your debt.
“But if you think you need more time, a credit card may be a better choice because you have the flexibility to choose your monthly payment amount, assuming you meet the minimum amount,” Schultz says. .
Ultimately, Schultz and Rothman agree that it’s usually better to use a credit card, as long as you can pay off your balance in full and avoid potentially expensive interest charges.
When used responsibly, credit cards can help improve your credit score and come with perks that can earn you cash back and travel points. It also offers various protections such as fraud protection and extended warranties.
“Using the right credit card wisely can make a big difference in your bottom line,” says Schulz. “Rewards allow you to stretch your holiday budget, and consumer protections make it less of a problem if you receive a damaged item or need to return it.”
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