The Hidden Costs of Buy Now, Pay Later — And Smarter Ways to Pay for Gifts

You're scrolling through holiday deals on your phone, and suddenly a $200 gift becomes four "easy" payments of $50—no interest and no credit check. Just click and done.

But the bills that come due later won't be done with you. During the 2024 holiday season alone, Americans spent a record $18.2 billion using BNPL services, up about 10% over the previous year, with another 11% increase forecast by Adobe Analytics for this coming season.

"BNPL is marketed as a budgeting tool, but for many young users, it becomes a trap," says Abigail Wright, Senior Business Advisor at the Chamber of Commerce. "The real issue is not just overuse, it's underestimating how quickly small payments pile up."

Split Payments Now, Regret Later

BNPL lets you grab that new gadget now and split the cost into a few fixed payments, often with no interest if paid on time. Recent Federal Reserve data shows 15% of U.S. adults used BNPL in 2024. The Fed survey found 87% of BNPL users said they chose it to spread out payments, and 82% said it was simply convenient.

BNPL companies typically offer “pay in four” plans. Marketed as interest-free, many consumers see it as an easy way to afford purchases without paying a cent extra. For someone already tight on cash, paying $25 every two weeks instead of $100 today is a lifeline.

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Debt, Delinquencies, and Dollars Lost

The Fed found that in 2024, about a quarter (24%) of BNPL users fell behind on at least one payment—a jump from 18% the year before. Over half of those users were slapped with extra fees, making it a real debt trap for many.

BNPL users are already financially vulnerable. A Federal Reserve report finds BNPL users have far less savings and are much more likely to carry credit card debt.

One problem is overspending. Because the payment is split up, it feels less painful, especially if you are splitting up BNPL borrowing across different platforms, Wright said. "You end up with four or five ongoing loans without realizing it."

Wright warns that BNPL's convenience masks particular dangers for younger shoppers. "Gen Z has grown up in a digital world where convenience rules. BNPL fits their lifestyle, but without strong financial literacy, it can spiral into debt before they realize what's happening," she says.

Budget Better, Buy Smarter

The solution? Go back to basics. Make a budget by calculating what you can really afford (including bills, travel, and holiday expenses) before any shopping starts. Consider using only a set amount in cash or on your debit card with alerts to keep spending visible.

Get creative with gifts. The Consumer Financial Protection Bureau even suggests thinking outside the (gift) box: sometimes a homemade present or an experience (movie tickets, a day out) costs less and is more meaningful than another gadget.

If you do need extra credit, use a low-interest credit card wisely—pay it off quickly and in full each month to avoid interest—or open a small dedicated savings account for holiday expenses months in advance. Most importantly, Wright says, read the fine print for late fees, interest, or third-party collections, and build credit history separately with safe, beginner-friendly credit products.