Shadyside financial coach Shay Port recently counseled a woman who was so strapped for cash she had to buy all of her groceries through companies offering buy now, pay later credit services.
Although the client, a Pittsburgh woman, was only buying groceries and everyday necessities on credit, her installment payments had grown to more than $400 a week.
“She was trapped in a vicious cycle,” said Ms. Port, owner of Financial Wellness with Shay Port. “The only way she could afford to buy more groceries was to keep using buy now, pay later the next week.”
More Americans are choosing to go in debt rather than go hungry.
In another sign of the times, the e-commerce data collection company Adobe Analytics, based in San Jose, Calf., found more people than ever are using buy now, pay later services to pay for groceries.
Buying groceries online and at retail grocery stores through buy now, pay later services grew by a whopping 40% in the first two months of this year compared to the same time last year, according to Adobe. That’s compared to a 14% drop in electronics purchases and an 8% uptick in apparel sales.
All of the major Pittsburgh area grocers have embraced the growing trend. O’Hara-based Giant Eagle, Kuhns and Aldi allow customers to make buy now, pay later purchases at the register. The grocery bill gets spread out over four interest-free installment payments, typically over six weeks.
This form of credit — which competes with traditional credit cards — has been around for about a decade, but it took the retail industry by storm during the pandemic when quarantined consumers were struck by the online shopping craze.
Buy now, pay later has become one of the most popular online payment methods.
The biggest players — Klarna, Afterpay and Affirm — count close to 70 million users in the U.S, according to Insider Intelligence, an e-commerce marketer based in New York. But at least a dozen other companies have entered the space in recent years, including Block, Bread, PayPal and ApplePay Later.
It’s a payment system originally designed to help consumers purchase big-ticket items on credit — like Peloton bikes and flatscreen TVs — without paying high interest and fees that come with using traditional credit cards.
But it’s getting harder to tell the difference between the two now that consumers have the same option to use buy now, pay later financing for everyday items.
“People will put $150 worth of groceries on buy now, pay later for four payments, but those payments could be due every week,” Ms. Port said. “It makes no sense to use this for something you’re going to have to buy again next week. The problem with this model is it gives a false impression of what something is really costing them.”
More people living paycheck to paycheck
Credit card debt is on the rise in the Pittsburgh region and more families here are being pushed to the brink, according to credit counselors at South Side based Advantage Credit Counseling.
In the first two months of this year, the number of people seeking counseling for their struggles with credit card debt is 42% higher than the same period last year. The number of homeowners seeking foreclosure prevention counseling at Advantage Credit Counseling was 170% higher in the first two months of this year than in 2022. Foreclosure counseling is for people who have fallen behind on their mortgage payments and received an Act 91 notice of a pending foreclosure.
“We’re definitely seeing credit card debt up in general,” said Heather Murray, director of compliance and community relations at Advantage Credit Counseling. “People are having a harder time paying for those regular expenses that you have like groceries and gas.
“It’s not just big-ticket items,” she said. “More people are living paycheck to paycheck and supplementing their income with credit card use.”
Consumers who buy everyday items like milk and gasoline on credit pay can dig themselves into a debt pit hard to escape.
Credit counselors, she said, recommend people in debt take a hard look at how they are spending. The best exercise is to make a record of all purchases for 30 days and evaluate where cuts can be made.
“Sometimes that works for people and sometimes it doesn’t,” Ms. Murray said. “Sometimes it really is an income issue.”
Still paying the full amount
The pain of rising consumer prices is being felt across the nation.
Total credit card debt nationwide is higher than ever — $986 billion in the fourth quarter of 2023, according to the Federal Reserve Bank of New York.
The average debt owed by consumers using buy now, pay later services is about $883, according to a June 2022 report by the Federal Reserve Bank of Philadelphia. The average buy now, pay later user finances about four items at a time, the report noted.
An Adobe spokesman said in a statement that the sharp increase in grocery purchases through buy now, pay later is an indication that consumers are making bigger purchases online to take advantage of special promotions to stock up on food staples, thus managing household expenses in a more flexible way.
It might seem like a good idea to use buy now, pay later since consumers don’t pay interest — assuming they make payments on time — but it’s also a slippery slope that can lead to unmanageable debt, Ms. Port said.
“It simply makes the item seem like it’s going to cost less. But it doesn’t,” she said. “You are paying the full amount in four payments that come very quickly. Before you know it, you’ve got 10 of them.”
The first time Ms. Port helped a client experiencing serious trouble with buy now, pay later debt, around November 2021, she decided to try it herself. She bought a computer accessory on Amazon for around$100, thinking it would be convenient to split the price into four payments.
“But what I found out was it was $25 every two weeks, which made the whole thing useless,” she said. “It’s in the same budgeting period. Budgets last for a month. If you have to make more than one payment in a monthly period, there’s no benefit.”
Tim Grant: email@example.com or 412-779-5834
First Published April 1, 2023, 5:30am