Since the advent of Australia’s first credit card in 1974, Bankcard, it has become earlier and easier to wear excess expense. Nowadays, you can straight up go into debt – up to a pre-determined limit … and simply deal with the legacy later.
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But you can also pre-commit specific chunks of your income before you earn it… such that big bits of your pay, when it arrives, are already gone.
To my mind, this is like the evil twin (more like cousin) of quaint-and-economically-responsible layby, the principle behind which is to make all payments before you take home the goods.
Of course, I am talking about ubiquitous buy-now-pay-later services. Although there is a plethora of different designs, products commonly let you bag some buy and subsequently pay it off in six to eight equal instalments.
On widespread concerns they are plunging users into financial trouble in a cost-of-living crisis, including from the regulator ASIC, access to buy-now-pay-later is about to be more heavily policed.
Proposed new legislation will bring products under the National Credit Code, requiring basic credit checks for new customers. Previously, the buy-now-pay-later design was exempt as no interest is charged, but instead fees levied on missed payments.
However, you may have noticed traditional credit players tilting their old-school offerings the way of the hugely successful delay-pay industry, too.
Many banks and credit card issuers now have a Plan It (Amex) or SurePay (CBA) facility, or some such, at the click of a button. This potentially removes select big-ticket items and makes them pay-over-time prospects.
Though better than keeping such a purchase on a high-interest credit card long term, it’s a far cry from the 0 per cent for up to 60 months, Latitude Financial-style shopping products (think Harvey Norman, Domayne, Joyce Mayne and more). Remember, the trick with these products is to pay them off in the interest-free period, or you will be slugged with nose-bleed terminal interest.
With the new version, often on offer for up to 12 months, the monthly fees can equate to interest of as much as 5 per cent. And again, that income is pre-committed, potentially leaving less and less left.
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Some products also prevent you from paying it off in advance if your circumstances change. Or they prevent this without penalty.
Now more than ever, particularly in combination, there is serious financial danger from all the ways to get your pay early. Indeed, there are even early-pay-day services … of course, for a daily cost which quite simply erodes your income.
But bigger picture, if the other side of an imbalanced budget is aspiration, what do we do about marketing targeting that is now so sophisticated and specific – on our computers, phones and watches, and often on social media itself – that it’s almost painful to resist?
Well, I recently conducted a digital ‘dollar’ detox that saved even my stingy self a little. I recommend switching off, unsubscribing, hitting ‘show fewer’ … so you don’t even see what the Joneses are doing.
Get some mental – and monetary – space back.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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