Americans Are Drowning in Buy Now, Pay Later Debt and Wall Street Can’t Keep Up

Folks, it’s time to wake up to a growing financial crisis that Wall Street can’t track. The culprit? Buy Now, Pay Later (BNPL) services like Affirm, Klarna, and Afterpay. These platforms are skyrocketing in popularity but aren’t reported to credit agencies, masking the accurate picture of American households’ financial health. Let’s dive into this Bloomberg story that’s sounding the alarm.

Phantom Debt: The Hidden Crisis

Phantom debt is the term describing the invisible yet mounting debt created by BNPL services. Tim Quinlan of Wells Fargo warns that people need to be more aware of the rise of BNPL. The lack of transparency stems from a dispute between BNPL providers and credit bureaus. Essentially, BNPL companies resist data disclosure, arguing it could harm customers’ credit scores.

Despite this, the market continues to expand, making it harder for economists to understand consumer spending and debt accurately. The allure of installment payments attracts consumers, but it’s a double-edged sword. According to a Harris Poll survey, 43% of users are behind on their BNPL payments, and 28% have become delinquent on other debts due to their BNPL spending. This is insanity, folks.

Why Credit Scores Should Reflect BNPL Debt

Tom, a financial expert, states, “If they’re already maxed out on their credit cards and BNPL wants to lend them more money, it should harm their credit scores. Credit scores are vital signs of financial health, like blood pressure or temperature. BNPL companies resisting data disclosure to protect credit scores is like ignoring a fever because it’s inconvenient.”

Financial Incompetence or Lack of Education?

How many consumers are admitting they don’t have financial education or discipline? Let’s look at the data:

• Spent more than I can afford
• Find it difficult to stick to a monthly budget
• Surprised by how much I owe monthly on BNPL
• Falling behind on other lines of credit
• Gone into debt, spending out of control

Three, four, maybe five of these points indicate that consumers are openly admitting they’re either not educated or out of control financially. This is a huge issue that needs urgent attention.

The Consequences: Financial Ruin

What’s the endgame for these rising problems? Increased dependency on government aid, a messed-up economy, and a housing market that could crash are all possibilities. The bubble built by unchecked BNPL spending is likely to pop, causing widespread financial ruin.

A Call for Responsibility

Tom continues, “No one forced you to use BNPL services. You made that choice. You chose to buy gifts during Christmas that you couldn’t afford. I made decisions like these too. I bought a car I couldn’t afford and had to change my relationship with money to get out of debt. The first step is taking responsibility, and it’s not easy, but necessary.”

What’s the Solution?

Adam, another financial advisor, adds, “BNPL should be called ‘Broke Now, Poor Later’. People need to be responsible for their financial choices. It’s on you at the end of the day. We need more financial education to curb this trend.”

New terms like ‘money dysmorphia’, a disconnect between actual financial well-being and perceived wealth, are becoming common, especially among Gen Z. Influenced heavily by social media, many young people have a distorted view of their finances.

Final Thoughts

So, what do we choose? To be responsible and educated about our finances, or to continue down this path of financial ruin? The choice is yours.