4 tips for people who feel trapped by Klarna and Affirm

buy now, pay later culture is killing us

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Lately, I’ve been working with a lot of people who feel trapped by Buy Now, Pay Later (BNPL) services like Klarna, Affirm, Afterpay, and PayPal. At first, people feel relieved that they can split purchases — big and small — into interest-free installments over a few months.

I’ve seen people put everything from medication, groceries, back-to-school clothes, plane tickets for emergency travel, and concert tickets on Affirm or Klarna. There’s an initial relief that a necessity or luxury that was once unaffordable is now within reach. But weeks later, when they’re still paying for groceries that have already been eaten, I find that people are stressed, angry, and confused about how they got here.

In my practice, I’ve seen people ravaged by these short-term loans, struggling to juggle payments with daily expenses. At most, one client was shocked (and ashamed) to find they had 22 accounts with various BNPL lenders. That’s 22 payments to keep track of on top of groceries, dining out, medical bills, pet care, and car payments, which are all hard enough to manage on their own.

If you’re in this position, I totally understand. As always, I’m not here to judge or shame you. In fact, I am seething on your behalf.

According to a J.D. Power Survey published in February, Gen Z uses BNPL more than credit cards these days, with 57% using services like Affirm and Klarna over credit cards to buy Christmas presents — the first time that credit cards were surpassed by any other payment method during the holidays in the survey’s history.

Federal studies have shown that Black and Latinx women are the most likely to use BNPL services. The same study from FED Notes says:

• BNPL provides credit to financially vulnerable people, but those same people are overextending themselves.

• People spend more when BNPL is offered at checkout.

• BNPL use leads to an increase in overdraft fees and credit card fees.

While some conveniences come with using these services, those conveniences are only available to people on solid financial footing.

Make no mistake: Buy Now, Pay Later services are the same predatory lenders in a shiny, new outfit. Just like credit card companies and payday lenders, BNPL companies know that we can’t afford daily expenses anymore, and they are cashing in on our downfall.

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How Buy Now, Pay Later services affect your credit

BNPL services typically use soft credit checks to approve your installment loan. Soft credit checks don’t affect your credit. Some services, like Klarna, use hard credit checks, especially if you’re making a larger purchase. In contrast, hard credit checks will dock your credit score by five to ten points.

Some people use credit cards to build credit. Since on-time payment history is the most important factor in your credit score, people trying to build credit put a few automatic expenses on a credit card and pay off that balance before interest accrues. This practice helps build payment history and raises credit scores. BNPL loans don’t offer the same benefit since on-time payments on these short-term loans are not reported to credit bureaus.

On the other hand, BNPL services do report missed payments and default accounts to credit bureaus. Typically, BNPL services give you a warning and a clear deadline before reporting late or missed payments though.

Here are some tips if you’re feeling overwhelmed by these loans:

1. Organize your loans by date and amount

From what I’ve seen from Buy Now, Pay Later platforms, it’s hard to look at all of your loans, due dates, and amounts due in one place. So it’s time to get analog. Get your Excel spreadsheets, Google Sheets, or good ol’ pen and paper out.

You’ll need to list the following information about your loans:

• Creditor (ie, Klarna, AfterPay, Affirm, etc)

• The store you purchased from (ie, Instacart, Amazon, Best Buy, etc) — this helps you discern which loan is which when you have multiple under the same creditor

• Remaining balance

• Payment amount

• Payments left

• Frequency (ie, once a month or once every 2 weeks)

• Due dates — Make sure to make multiple columns if your installments are due more than once a month

Here’s an example of one I created with fictional loan balances (that are based on real situations I’ve seen):

Let’s call this person Jett.

Jett has six different loans totaling $4,084.70 and monthly payments totaling $650.83. Two of the loans collect payments twice a month. There’s a total of 34 payments remaining.

The Klarna payments for the Best Buy purchases have 10 months left, which means Jett can be free from BNPL loans within 10 months, assuming that they have the ability to make all their payments.

2. Get clarity on how many payments come out of each paycheck

Let’s say Jett receives two paychecks from a full-time job per month, one on the first of the month and another on the fifteenth.

Here’s the data above organized by due date:

From the first paycheck of the month, Jett would have to make the following payments:

• Klarna - Amazon, $26.44 on the 4th

• Klarna - Best Buy, $214.90 on the 6th

• Affirm - Instacart, $20.32 on the 9th

• Total: $261.66

From the second paycheck of the month (on the 15th), Jett would have to make the following payments:

• Klarna - Amazon, $26.44 on the 19th

• Affirm - Instacart, $20.32 on the 24th

• AfterPay - Crate & Barrel, $286.40 on the 16th

• Affirm - Instacart, $16.81 on the 19th

• Klarna - Amazon, $39.20 on the 22nd

• Total: $389.17

In this case, if Jett’s income is stable, I would recommend manually paying the amounts due on the 1st and the 15th so they don’t have to worry about those payments coming out later in the pay period. This gives Jett as much clarity as possible about how much they have left to spend until their next paycheck hits, relieving the manual accounting that results from having multiple BNPL loans and preventing overdraft fees.

3. If possible, request new payment dates to match your pay schedule

Some of these services allow customers to change or extend the due dates on their accounts.

Back to our example: Jett might be having a hard time paying $261.66 during the first half of the month, since rent is due on the first of the month. I might suggest that Jett move the first half of the month’s most expensive payment, the Klarna - Best Buy payment for $214.90, so that it’s due on or after the 15th, just to give them a little more breathing room in the first half of the month.

4. Pay off the smallest balances first

This tip takes inspiration from the debt snowball method, typically used for credit card debt. The debt snowball method involves paying off your debts from the smallest to largest balance, gaining momentum and motivation to pay off your debts as you go.

Here’s the list of Jett’s BNPL loans from the smallest to largest balance:

In this case, I would encourage Jett to pay off the Instacart purchase made with Affirm with a balance of $67.22 on one payday, then pay off the $79.33 balance on the Amazon purchase made with Klarna on the next payday.

The end goal is to stop using Buy Now, Pay Later services altogether

Buy Now, Pay Later culture is killing us. These services create dissonance and confusion about what we can actually afford. Buy Now, Pay Later culture keeps us in denial about how bad things have gotten under capitalism.

I don’t want anyone to starve if putting groceries on a BNPL installment loan is truly the only way you can afford to feed yourself. That’s not my point.

Overall, BNPL services keep us in a cycle of shame, self-blame, and chaos around our finances, and I don’t want you to fall into that trap.