BNPL Is My Holiday Budget Saver. These 4 Rules Make It Work

For the past few decades, my spouse and I have opted to skip the small stuff when it comes to holiday gifting and go right for a big-ticket item that we know we'll both enjoy. Unfortunately, these expensive gifts aren't always immediately affordable, which is why we leverage buy now, pay later options. 

If you've done any shopping online in the last few years, you've likely noticed buy now, pay later options like Klarna or Affirm built right into your shopping cart. These payment options usually work like zero-interest (or low-interest) short-term loans, but without the credit check.

BNPL allows you to make purchases now and pay the cost back in monthly installments that are charged automatically to a credit card or withdrawn from a bank account.

Deferring some of the cost and breaking larger payments into installments spread out over weeks or months at zero-interest has allowed us to focus on our holiday gift list without negatively affecting our credit or landing us with credit card debt.

Here's how we leverage BNPL options to boost our holiday shopping budget without overspending.

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How I'm using Buy Now, Pay Later this holiday season

My family and I have used some form of buy now, pay later services several times in the past to afford bigger holiday gifts without putting an extra strain on our finances. One year, we took advantage of a zero-interest financing offer at a furniture store to buy ourselves a sectional couch.

This season, our usual savvy budgeting has been strained by a cross-country move and a more expensive mortgage. And while I've leaned into earning points on my Amazon Prime Visa for some holiday gifts, I'm also planning to use buy now, pay later for two big-ticket gifts: headphones and a gaming console for our teenagers.

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Amazon offers Affirm as its pay-in-installments option. Given my credit score, I was able to secure 0% interest on $1,000 of purchases and the ability to pay in installments over the course of three to six months. I chose to do this rather than charging the items on our credit card because it bought us a little extra time to pay off the purchases.

My rules for using Buy Now, Pay Later

Although I've used installment payments or BNPL in the past and will likely do so again, it's not appropriate for every budget or every shopping situation. Here are my rules to ensure deferring payment will help instead of hurt my finances.

1. Build the payments into your budget

You need to have a plan for how and when you'll make payments. Most BNPL options simply withdraw the money from your account or charge the payment to the card you have on file. But eventually, those charges come due and you'll need to have enough in your bank account to pay them. 

2. Read the fine print

As with any financial offer, it comes down to reading the fine print. You need to understand the terms you're being offered, how long the repayment period is, and what will happen if you're unable to make payments or accidentally miss one. Add reminders to your calendar so you're not surprised when a payment comes due after the holidays are over.

3. Consider the interest rate carefully

I personally only use zero-interest payment plans, but you'll need a high enough credit score to qualify for this kind of offer. If that's not the case, then compare the BNPL interest rates with your credit card interest rate and choose the payment option that has the lowest rate.

4. Avoid overusing BNPL

There have been several years where we've simply used my spouse's holiday bonus to buy an expensive gift or a family vacation. If you have enough savings to make the purchase comfortably, there's no point in taking the risk of deferring payment. By using BNPL sparingly, you can more easily keep track of payments and avoid getting overwhelmed.

Don't use BNPL to buy things you can't ultimately afford

BNPL might seem safer than using credit cards, but it can still quickly lead to overspending. Because you get the goods up front, it's easy to forget about the payments you'll need to make later. If you're buying something in installments because you couldn't purchase it if you saved for several years, it's probably not something you can afford right now. 

Some alternatives ways to afford big-ticket items:

• Start a sinking fund. If you can put aside a little money each week into a high-yield savings account you can save up for a purchase and even help your money grow thanks to compounding interest. 

• Apply for a credit card that offers an intro 0% APR. If you have multiple purchases and need more time to repay, consider applying for a credit card with an 0% intro APR offer. Just make sure you have a plan to pay off your balance before the promotional period ends, typically after nine to 21 months. Check the terms before you sign on and understand that opening another credit card might affect your credit score.

• Use layaway. If you can wait a little longer for your gift to arrive, Amazon Layaway may be a good option. With layaway, you don't get your purchase until after you make your last installment payment, which can be helpful if you're concerned that you'll forget about payments once the gifts are unwrapped.