Can You Consolidate Buy Now Pay Later Debt? Here’s What You Should Know

Buy Now Pay Later is increasing in popularity as a way for many New Zealanders to pay for some of their purchases.

But sometimes, it can become a problem. Centrix data shows that arrears topped 10 percent in 2023.

If you’ve got BNPL debt that is proving difficult to manage, consolidation could be an option.

What is Buy Now Pay Later (BNPL)?

BNPL schemes allow shoppers to spread the cost of their purchases over a set number of weeks.

Provided the payments are made on time, there is no interest charged. But if payments are missed, there can be fees that can add up quickly.

Some of the most well-known providers in New Zealand are Afterpay and Laybuy.

Buy Now Pay Later can be a handy tool for cash flow management. But there’s a risk that people might spend more than they would if they were paying upfront, and could end up with multiple debts.

The Risks of Multiple BNPL Accounts

Buy Now Pay Later isn’t without risks.

It can be stressful to manage a number of different payments, and if you fall behind, it can be detrimental to your credit score.

Late fees can snowball, particularly if you have a number of different debts in trouble.

Can You Consolidate BNPL Debt?

It is possible to consolidate BNPL debt.

Debt consolidation refers to combining a number of debts into one new loan.

Having just one payment to manage can be easier financially and mentally, and you can sometimes save money, too, if you can pay off the debt more quickly or at a lower interest rate, or you’re avoiding the penalties that Buy Now Pay Later can attract.

When it comes to BNPL debt, it’s usually only worth consolidating debt that you’re having trouble repaying, because while you’re making the repayments, it’s interest-free, and paid off within a generally short period of time.

Debt Consolidation Options for BNPL

There are a couple of different ways you might choose to consolidate your Buy Now Pay Later debt, if you decide that’s the right option for you.

Personal Loans

You could take out a personal loan to clear your accounts. This means you transfer the debt to a new loan, which you’ll pay back plus interest over a set period of time. If you make all the repayments, at the end of the loan term, you’ll be free of the debt – provided you haven’t taken out any new debt in the meantime.

This can work well if you like the structure of knowing what you’ll have to pay and having a structure to clear what you owe.

Balance Transfer Credit Cards  

You might be able to pay off your debt with your credit card, and then transfer the balance to a new card. Some lenders have low or no-interest offers in this scenario, which may save you money. There are eligibility criteria you’ll need to meet, and it’s important to make sure that you don’t just end up putting more debt on your cleared credit card.

Debt Management Plans

If things are getting a bit stressful, it could be a good idea to talk to a financial mentor to get a debt management plan in place. Services such as MoneyTalks can help you get a grip on your finances and come up with a strategy that works for you and your goals.

Steps to Take Before Consolidating

• Assess your total BNPL debt: How much do you owe? What is overdue? How much of a problem is it?

• Review your budget and ability to make repayments: What capacity do you have to clear the debt? Are you going to need to spread repayments over a long period to keep them low, or can you afford to push a chunk of money at them to clear them quickly?

• Check your credit score and understand its impact: It’s worth assessing your credit position. Often, the better your credit score, the more options you may have.

• Compare consolidation options: At better finance™, we can talk to you about what your options for debt consolidation might be.

Pros and Cons of Consolidating BNPL Debt

There are a few things to weigh up when you’re thinking about whether consolidation is right for you.

Pros

• Your debt may be easier to manage – one repayment is easier to keep track of than several.

• Your debt costs may be cheaper, depending on how the interest cost compares to the late fees you were being charged.

• You might be able to rebuild your credit – if your debt has caused a problem on your credit history, getting it back under control and showing you can make repayments can help improve your credit score.

Cons

• There may be fees to pay on your new borrowing – depending on the strategy you choose, there could be application fees and/or annual fees.

• You’ll also pay interest on the consolidated debt. If you’re making on-time payments on your Buy Now Pay Later loans, you won’t be charged anything for that borrowing.

• Buy Now Pay Later debt tends to be short-term, often paid off in a matter of weeks. A personal loan could be with you for much longer.

• There is also a risk of taking on more debt – it’s important not to think that clearing your debt gives you leeway to take on more debt.

• It can have an impact on your credit score – there may be a negative impact on your credit score when the new loan is taken out.

Alternatives and other strategies

You could find that there are alternatives to consolidation, such as negotiating with the lenders to find a way to clear your debt, or taking a DIY strategy to clear your debt.

If you’d like to avoid taking out more Buy Now Pay Later debt in the future, you might want to build an emergency savings account. This means you have funds available for unexpected expenses and won’t have to turn to debt to fund them.

If you’d like to find out more about saving an emergency fund or just improving your financial life overall, Sorted has many tools that can help. The team at better finance™ can help with any lending questions you may have, too.

Frequently Asked Questions

• Will consolidating BNPL debt hurt my credit score?

  There might be a small impact initially, but if you can use the consolidation process to clear your debt and build a pattern of repayments, it should improve your score over time.

• Can I consolidate BNPL debt if I have bad credit?

  Maybe – we can talk to you about what options are available.

• Are there any government schemes to help with BNPL debt?

  The Government has recently moved to regulate providers; you can find out more here.

Need help?

If you’d like to get your financial life back on track with debt consolidation, get in touch with the team at better finance™. We can talk to you about your options and help you plan a strategy that works for you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.