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Mybudget
Afterpay could land you into more debt
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By MyBudget Editor

Buy now and pay later… you can get everything from small purchases to flights interest-free -- isn’t that handy? Not really, when you take into consideration that services like these usually don’t conduct a background credit check before instantly approving your application. If you’re not careful with making every repayment, not only will you be slugged with compounding late fees, but it could be recorded on your credit history; it’s a type of loan after all! 

Why do services like Afterpay exist? Quite simply, it helps their over 20,000 retail partners to push through the most difficult challenge for retailers, which is closing the sale, i.e. getting you to commit to buy and hand over your hard-earned money. 

It’s also clever consumer psychology, because handing over physical cash to pay for an item can be a painful experience. For example, a 2008 study found that,

“the more transparent the payment outflow, the greater the aversion to spending or higher the ‘pain of paying’ …leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or ‘monopoly money.’”

You read that right. We don’t feel the pain of paying when it’s just a matter of clicking a simple button saying “pay interest-free in four instalments” or swiping a piece of plastic. So as a consumer, you’re more likely to buy something you don’t really need or can’t really afford right now with “conveniences” like these. 

It’s big business. In Afterpay’s last annual report, their earnings from late fees alone increased 365% to $28.4 million compared to $6 million made in the 2016-17 financial year  -- and that’s just one company! Other companies offering similar services include zipMoney, Zip Pay, Oxipay, Lombard, Certegy, Brighte, CreditLine, Openpay, and Once.

To summarise, there’s a good chance that a simple budget is much more beneficial and a safer alternative to ‘buy now, pay later’ services. A budget will enable you to not only visually track your income and outgoing expenses, but you’ll be able to put money away and save. It’ll also make you think about your spending and determine if they are necessities or luxuries. 

Services like Afterpay are like all-you-can-eat buffets… there is no control, you can eat all the cake now, it’s not really good for you, and you may regret it later. 

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