Credit

Buy now, pay later (also known as ‘BNPL’)

What’s buy now, pay later?

Buy now, pay later is a scheme offered to customers when they are at the point of making a purchase, usually online, which helps them to spread the cost of what they’re purchasing. 

You could also be offered to pay over a certain number of payments, like buy now, pay in three equal monthly instalments.

Buy now, pay later considerations

1. Do you really need this item?
2. If the answer to the first question is yes, have you checked to see if you have money available in your weekly/monthly budget to pay for this item now?
3. If you don’t have enough available spend right now, and you feel the purchase is necessary, do you need it right now or could you wait until you have more available funds?
4. If this purchasing option (BNPL) wasn’t available – would you still want the item?
5. Have you considered selling unwanted items first to raise some extra funds instead?
6. Can you reduce any of your outgoing expenses to make this purchase rather than use a BNPL scheme?
7. Can you wait until next month and include this spend within your budget so it’s accounted for?

What if I need to cancel a buy now, pay later agreement?

You might be able to return the item, but until you have confirmation that the return has been accepted and processed within the seller’s system, you won’t be able to cancel the buy now, pay later scheme.

It’s important to check the Terms and Conditions of different BNPL schemes before committing to a purchase.

I’ve missed a buy now, pay later payment – what happens now?

One of the dangers of missing an instalment is that you risk being charged extra fees. You may not have missed the payment intentionally; it may be that you don’t have enough available in your bank account when the payment request is made.

If you do decide to go ahead with a buy now, pay later agreement, it’s important to make a note of the payment dates so you always know when to expect them, and can ensure you’ve budgeted for them each week or month.

Again, it’s important to double check the Terms and Conditions when committing to a BNPL arrangement to see what happens when payments are missed or late as this can also affect your credit rating.

If you’re struggling with keeping up with payments you’ve already committed to, get in touch with your BNPL provider as soon as possible and see what help they might be able to offer you.

If you don’t contact your provider to make them aware you’re struggling, they can initiate a process to claim their payments which usually involves issuing a default notice. The default notice gives you a little time to arrange a plan to catch up with the payments but if you don’t deal with the debt, it will then ‘default’. At this point, you risk charges being added, increasing what you’re already struggling to pay back.

If the provider has still not had a response from you at this point, they might decide to seek a County Court Judgment (known as a decree in Scotland) against you. This can affect your ability to get credit with other lenders in the future. The debt could then also be sold on to a Debt Collection Agency.

Credit cards

What is a credit card?

Most people will have come across the term ‘credit card’ at some point in their life, but what does it actually mean, and what is a credit card debt? Credit card debt is one of the most common types of debt – they’re seen as an easier way to borrow and make payments and – as long as they’re used properly – can be a helpful way to spread costs of bigger purchases.

However, if you’re not careful, they can also be an easy way into debt.

Aside from having high-interest rates, credit cards can take a long time to pay off and often have expensive charges for late or missed payments, which can quickly add up.

Understanding the different types of cards

Credit cards

• Issued by banks
• You have to apply by going online or into a branch
• You’ll have a credit limit, which is the maximum you’re allowed to spend on the card
• Spending above your credit limit means you may have to pay charges on your card
• Unless you pay your balance off in full, you’ll be charged interest on what you’ve borrowed each month

Store cards

• Work similarly to credit cards
• Allow you to buy items on credit from a retailer
• Anything you spend might begin to accrue interest if you don’t pay it back within a certain timeframe

Debit cards

• Linked to your bank or building society account, they allow you to draw out money you’ve already got available in your account (rather than borrowing)
• If you try to draw out more money than you’ve got, your card may be declined, or you might go into your overdraft facility or face extra charges if you do not have an arranged overdraft facility.

What happens if I don’t pay my credit card?

If you fail to keep up with credit card payments, steps will be taken to recover the money you owe:

1. At first, your card provider will contact you – either over the phone or by letter. They may do this multiple times and you’ll need to make at least the minimum payment on your credit card debt to avoid any further action being taken.
2. If you don’t pay after your provider has asked you for payments, your account will ‘default’ and your card may be cancelled. You’ll be asked again to pay what you owe.
3. If you still fail to pay back your debt after your card’s been cancelled, you might be contacted by a debt collection agency

How can I pay off my credit card debt?

First things first, assess your finances and work out what you can afford – it’s helpful to look at your incomings, outgoings, and spending habits. Look at areas where you can reduce your spending too.

Some people consider a balance transfer which involves transferring all their debts to a card with a lower interest rate, meaning they’ll pay less in total. It’s important to investigate this carefully though as there may be a charge for doing this – be sure to read the small print!

If you’re still struggling to pay off credit card debt

If you’re still struggling to pay back the money you owe, you still have options to consider:

• Speak to your other credit card providers (if you have them) to see if they can offer you a payment holiday
• Stop using your credit card so that you’re not tempted to accumulate more debt
• Avoid using a credit card to make cash withdrawals
• Seek professional help – PayPlan’s here to help you get on top of your finances and ready to help when you are! We offer a variety of different debt solutions that can help reduce the amount you’re paying every month.

Overdrafts

What is an overdraft?

An overdraft acts as a credit buffer on a bank account – it’s important to remember each time you go into your overdraft, you’re borrowing money.

Types of overdrafts to be aware of

Arranged overdraft

The amount of your overdraft is within the amount agreed with your bank.

Unarranged overdraft

The amount of your overdraft is not within the amount agreed with your bank (where you’ve spent more money than within your agreed limit or you don’t have an agreed borrowing amount with the bank). You’ll be charged daily when you go into an unarranged overdraft.

I’m struggling to pay off my overdraft – what can I do?

t’s common for people to dip into their overdraft as payday approaches or if they’ve had some unexpected payments go out of their account. It’s important not to go over the overdraft limit though, otherwise you’ll not only have to pay back the overdraft, but any extra charges too.

If you’re struggling to pay off your overdraft, speak to your bank as soon as you can to make them aware. Your bank may be able to help you find a cheaper way to borrow and help make your debt more manageable.

Overdraft interest and fees

If you go into an unarranged overdraft (exceeding the amount agreed with your bank), expect to be charged some form of fee. The interest and fees applied will vary bank-to-bank.

Buffers

Some banks have a ‘buffer’ in place on overdrafts – the amount varies greatly between banks and different account types, but the buffer is essentially there to help people who dip a little into their overdraft to avoid fees.

If you don’t currently have a buffer set up, it’s worth checking with your bank to see if this can be set up for you.

Tips to help you pay off your overdraft

• If you’re struggling to pay off your overdraft, speak to your bank as soon as you can
• Move your direct debits to a different time of the month to minimise fees (moving these to come out straight after your payday, for example, when you know you’re more likely to have the funds available)
• Repay a set amount to your overdraft each month, gradually reducing it each month
• Consider separating your overdraft from your day-to-day banking
• Use any savings available to help clear your overdraft balance

Staying within your account limit

• Keep a record of everything you pay out of your bank account, including cash withdrawals, direct debits and standing orders
• Keep a close eye on the amount (the balance) and try to remember to check your bank statements as soon as you get them
• If you think you might take out more money than your account limit, get in touch with the bank straightaway to make an agreement.