35 – Buy Now, Pay Later: Smart Move or Financial Trap

Wayne  0:04  

Well, welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay. Today we’re going to be discussing Buy Now – Pay Later. Smart move, or is it a financial trap? 

My guest today Daniel Maksymchak from LCTaylor, Licensed Insolvency Trustee in Winnipeg, Manitoba with an office in Kenora. Ontario as well. Daniel, thanks for being on the show today.

Daniel Maksymchak  0:33  

Thanks for having me. Wayne, it’s good to talk to you again. 

Wayne  0:35  

We’re gonna have some fun. This is how we live: Buy now, pay later. Every commercial, everything we hear, everything we see, buy now and pay later. It’s horrible, isn’t it?

Daniel Maksymchak  0:49  

Well, that’s like you say – kind of the society we live in now. It’s all about keeping up with other people – instant gratification and posting it on social media and that kind of thing. But you know, it’s all fun and games until the bill comes.

Wayne  1:01  

Yes, that’s exactly it. And then you feel like, Oh did I need to buy this?  But some people don’t pay attention to how much they’re spending on the buy now, which surprises me, and I’m sure it surprises you.

Daniel Maksymchak  1:16  

Yes, there’s not that psychological connection, I think. It is part of the problem where when you are paying cash, of course, you’re physically giving something up in exchange for what you’re receiving. Whereas with cards, you just tap it, tap it, you don’t realize what you spent. There’s not a physical sense of loss until you get your bill in the mail, and you actually have to transfer that money out of your bank account to make that payment,

Wayne  1:36  

Or is it? Maybe they’re not experiencing my wife who gives me the raised eyebrow and knows I spent money before I even spent it. And then I have to go home and say, Here’s the receipt, honey.

Daniel Maksymchak  1:51  

Yes, now we’ve got these apps where it’ll alert you to transactions. So I suppose for shared accounts, that could be a liability.

Wayne  2:00  

It’s actually a good thing, and I had to learn, and I think everybody needs to learn. I don’t know if it’s a male, female thing, and I don’t really want to go that way. But I know for myself, I had no worries with okay, I need to get this. And this was pre marriage – I never even thought about anything like that. I’d get it, pay it off, buy something else, pay it off. Where’s the danger in that?

Daniel Maksymchak  2:29  

Well, the danger is making sure you have enough money to pay it off when the bill comes. Because if you don’t, and this is how these companies make their money – if you don’t pay it off, when the bill comes, then you’re paying interest. 

So be it a credit card where you get that grace period from when you charge it to when the bill comes in – if you don’t pay it when the bill comes in, then interest starts accumulating.  Or you see advertised furniture stores, electronic stores –  don’t pay until 2025, or something like that. You better have the money in 2025. Because if you don’t, then that’s when the interest rates really start kicking in. 

So you don’t want to be using these Buy Now – Pay Later plans to purchase things that you wouldn’t otherwise have bought, because you’re buying it with money that you don’t have. And the interest rates are going to maybe not multiply but add a significant factor to the amount of the purchase.

Wayne  3:17  

I remember when our kids were young and we had a single income and it was tight, money was super tight. And sometimes they’ll say, well don’t pay for six months, but I knew if I didn’t have money now I definitely wouldn’t have it in six months because nothing was going to change. You get so much money every two weeks. And so we have to watch that trap of just thinking well no problem, I might get a windfall.

Daniel Maksymchak  3:41  

Yes, waiting for the windfall that never comes and if you’re relying on that. You’re going to be in trouble when the bill does come in because you’re going to have that purchase plus you’re going to have interest and not only that but you’re going to be paying more for this thing that you purchased – which cuts into your current income at the time that bill becomes due. 

So you’re paying for the purchase you already made plus the interest plus you have got to try to keep up with your day to day expenses at that time. So you have even less money to go around and if you think, Well I didn’t have the money when I bought it in the first place you’re going to have even less in the future. 

You have got to make sure you stick to the necessities if you’re in that situation as you mentioned – single income and that money is not going as far for necessities. First make sure that necessities are covered and anything beyond that, you have to make sure you have got the money in the bank, not relying on a windfall that might never come.

Wayne  4:34  

So is there ever a smart time to use this kind of strategy – Buy Now – Pay Later?

Daniel Maksymchak  4:41  

There are times where it could be free financing essentially. For example your fridge broke and you needed a fridge, you have the money in the bank, but you go to a store and they’ve got this don’t pay till till 2025. If we use that example – you could get the fridge, you could not pay. In the meantime, whether you invest that money or use it to pay down debt – you are then saving money by reducing your total interest costs. You go and you finance it that way – if you do the math, and that’s the lowest rate of financing that you can get. 

Sometimes it is because it’s an incentive to get you to come into the store and buy something. But you’ve got to be careful that sometimes, the price of the goods goes up to compensate for this lost interest that they’re supposedly giving to you with this interest free loan. 

Sometimes in those situations, you should ask, Well, what if I just pay cash? Or what if I pay right now, instead of taking advantage of your free interest? Sometimes that’s built into the price, and in those cases, you’ll be able to get a better price by paying up front, and therefore it’s not really interest free because it’s kind of implicit in the price. 

Wayne  5:49  

Are there some terms and conditions that we should be aware of when it comes to this?

Daniel Maksymchak  5:55  

You definitely want to be aware of when the payments come due, and clearly mark that on the calendar. Because sometimes that’s how they make the money. Like I said, it’s cheap in the meantime, and then it suddenly shoots up once that date comes. So you have to make sure you’re on top of when that’s going to be due. Make sure you’ve got the money aside to pay for it. 

You also want to be paying attention to – sometimes it’s claimed as no interest but there’s a 1% service fee or something like that you have to pay on it. They’re saying, well, it’s not interest, it’s the cost of setting up this account that we’re doing. You want to make sure that there’s actually truly no extra costs to taking this mode of financing. And that you know, when you’re actually going to have to pay it and you know when the the bills are coming due,

Wayne  6:39  

I’ve never used that kind of service. But I’ve seen that if you miss that first payment, then they go back and you may have been charged 0%, maybe, but if you miss the first payment, or you’re late with the final payments, then they have the ability to go back and charge 12% per month or something ridiculous.

Daniel Maksymchak  6:59  

Yes, those kinds of things do exist. So that’s another term that you would want to look out for in that contract. When do I have to make the payment? If I can’t make it, then what happens? What other costs are built into this contract? And the other consideration would be, what would I save if I didn’t take out this contract, and I just bought it normally,

Wayne  7:17  

So when’s a bad idea to use these services,

Daniel Maksymchak  7:22  

When you’re buying something that you don’t have the money to pay for it. You’re out, you see something that’s not a necessity, it’s kind of a splurge purchase, and you’re like – something good could happen in the next couple of years, and I don’t have to worry about it until then. And then 9 times out of 10, you’re going to be there in a couple of years with this payment. 

The goods might not even be very useful anymore. If you finance technology or something like that, that goes out of date so fast. You might still be paying for something that is a minimal use to you. So you want to make sure that you’re living in the present, making sure that your present things are getting taken care of, and not spending money that you don’t have.

It’s no different than a credit card. If it’s used as a tool to let you book a hotel or airline ticket or something like that, to travel – to do one of those things with a credit card, then that’s fine. But if you’re using it to supplement your spending and spend money that you don’t have or to make ends meet – there’s a significant difference between how much you’re bringing in and how much you’re spending. 

That’s something where you’re probably going to want to speak to a Licensed Insolvency Trustee to review your budgets and take a look at why you have to charge that every month? Because you have this gap? Is there something there that you can adjust in your budget? Or is it a factor of you already have too much debt and the interest rates are so high that your income isn’t keeping up with your expenses anymore?

Wayne  8:46  

We’re going to talk about alternatives in just a moment. But you mentioned the budget word and I don’t even know what percentage of people don’t budget, but I would assume it’s very high. How do you figure out what you’re spending?

Daniel Maksymchak  9:06  

There are a few different tools that you can look at. But the simplest thing is just to just write it down. When you spend something, be it you know, on a charge card or with cash. Keep the receipt when you get home, write it down in the list. And before you throw the receipt, make sure you’ve had that recorded. 

You can categorize it depending on whatever expense categories that you want that are relevant to you so that you can tell how much you’re spending in each of those categories. That’s the simplest way – you just have to record it and then read it basically. 

Wayne  9:36  

I bring that up because when somebody comes in to do that free consultation and you ask okay, what’s coming in and what’s going out. There has to be some kind of documentation because otherwise if you were just thinking about it, you would think I’ve got my car insurance, I’ve got my rent, or mortgage payment and a couple of other things. But there’s all these little day to day things that you could get charged with as well. Those are probably the biggest ones that are the culprit of having less money and more expenses.

Daniel Maksymchak  10:12  

Yes, when people come in, nearly everybody knows what their rent or mortgage payment is, what their car payment is. It’s the question when we ask – how much do you spend on gasoline for your vehicle each month? Or how much food do you buy? Or dining in restaurants? Those kinds of things. It’s tougher to have a firm number on those. But a lot of people just just have no idea. 

Wayne  10:35  

It’s funny, you bring up the gas. Yesterday, I went and filled up and I got home and my wife asks, where’s the receipt? I’m like, do you really need the receipt? And she’s like, Yes, I track it every year. That way, I know. And I’m like, really? We usually keep receipts, because you never know when something goes sideways. But yes, she likes to just track it year after year and see how much we spend on gas. And she finds joy – she likes that stuff.

Daniel Maksymchak  11:00  

Yes, knowledge is power. Right? If you know where the money’s going, then you can make adjustments, prioritize things. But if you have no sense where it goes, and you’re trying to find extra money, you don’t know where to look.

Wayne  11:11  

Exactly. So let’s talk about some of the alternatives to the Buy Now – Pay Later concept.

Daniel Maksymchak  11:17  

The best method is to pay with money that you have, right? If you have the money, use it. You can talk to the salesperson and ask if they are offering this Buy Now – Pay Later. And as I said, you can say, I’m not interested in that –  I’ll pay now. Can you give me a better price? And sometimes they can because like I say, it’s built into that. 

Or you could, if you have the money in the bank – you could pay by credit card. Sometimes there’s different points that you can get, which is fine, as long as you can pay it off. Otherwise, the interest that you’re paying more than outweighs those benefits. 

But that’s a way to pay, of course. Look at the interest rates at these, Buy Now – Pay Later places and the service fees on that. Do the math, especially if it’s a large purchase. If I go this route with this Buy Now – Pay Later company, it’s going to cost me X dollars or X percent of the purchase – versus if I have a line of credit against my house, or an unsecured line of credit, it’s 5% or 8%. And, you know, I really need this fridge, or else I can eat for the next who knows till I get a new fridge. Then you’re better off to use that line of credit and not go into this, Buy Now – Pay Later and end up paying more for the service.

Wayne  12:33  

I remember – and this may still be the way it is, but new cars – sometimes they were to say you could get 1.9% interest or cash back. You didn’t get both?

Daniel Maksymchak  12:43  

Yes, that’s exactly the thing, right? It’s one or the other, you can’t get both. So if you do have the cash, you can save some money on the purchase price. But if you do the math, and depending on if you need a car. What would it cost you to finance if you didn’t take advantage of the dealer financing? Would it add up to more than the cashback you’re getting? These are the considerations that a savvy consumer would look into.

Wayne  13:09  

And we want people to be savvy. We want them to learn some of these tricks that we’re sharing with all the guests that we have on this show, the Debt Matters podcast. So pay now, I actually was just reading – I get excited about doing this show because I learn more and I get to then dive into different books and stuff. It just inspires me because we always think that everybody just has money falling out of their pockets. 

Depending on where you live, it just seems like there’s so many people that are driving these fancy cars and they’re always going on vacations and they’re always going on trips. But when you actually realize that most people actually aren’t, most people are over their head when it comes to debt – then it kind of makes it exciting to figure out how you can save some money and maybe retire eventually.

Daniel Maksymchak  14:04  

Yes, it’s all about priorities. If you’re prioritizing the nice car or the vacation and you have the money for it, then okay – but if you don’t have the money for it, you’re going to be really hurting yourself down the line, when you’re paying interest on this debt potentially. It’s cutting into money that you could be putting aside for retirement to use your example or downpayment for a house or something like that.

Wayne  14:26  

I’ve got a family member who’s in the middle of that right now – trying to save up for the down payment on the house and it was like okay, well let’s figure out where you’re going to be cutting. Your budget, where are you going to cut? Do you need to have 18,000 gigs of data – whatever it is, right now? What can you do to actually cut back just a little bit? So I think this is a great topic. Don’t you wish people would talk a little bit more about real life when it comes to money?

Daniel Maksymchak  14:56  

For sure, especially when it comes to debt and how to deal with That’s the real problem – there’s a stigma that comes to that and everyone wants to live the flashy life they’re posting online to their friends. And nobody wants to talk about debt and how they dealt with it and what the options are to deal with it. That can lead some people to seek out some alternatives that might not be the best for them, or to bury their head in the sand, and take it past the point of no return.

Wayne  15:24  

So I dove into a book called The Wealthy Barber Returns. I think most Canadians have heard of The Wealthy Barber. There was one bit of advice in there that he gave to some people. He said, This is the best advice: Just say, I can’t afford it. He said, I’m always getting invited to go golfing or go have dinner or go have some drinks after work or what have you. And I always go, but then I’m always, putting it on my card, I don’t have the money. What do I do? 

And The Wealthy Barber said, just tell people I can afford it. And he said, ‘Well, I don’t know, how am I going to look?’ And after he started doing it, he saw him  a couple of months later. The guy said, this has been the best strategy because there’s no stress on me. I just simply say, I can’t afford it this week. But maybe next week, and he said, it’s really made a big difference by being able to say those words, I can’t afford it.

Daniel Maksymchak  16:14  

Yes, it’s being honest with yourself and those around you. If you make up an excuse, as in, not feeling well or have to get home to do this task, then you’re going to get asked again next time. The pressure is going to keep building, obviously, you can’t make excuses every time. Whereas if you say, I can’t afford it, then that’s going to maybe adjust the expectations that others have for you. Let them know where your priorities lie. And as you said, that could make it stress free going forward, where you don’t have to face that question so often.

Wayne  16:44  

Yes, I just thought that was a great idea. Because everybody, as you say, they’re trying to keep up with everybody, but you don’t know what somebody else’s circumstances are. So why even try to keep up and measure yourself with that evil social media that we see what other people are doing. And you kind of feel like you need to try to keep up. And I think it’s very difficult in 2022, to actually be living and feeling like you need to spend more money.

Daniel Maksymchak  17:12  

Yes, absolutely. To use the social media example, everyone only posts the highlights. They don’t post that they have to eat macaroni and cheese to make ends meet. So you definitely don’t want to use that as an example to live your life by, because you’re only seeing half the picture, if that.

Wayne  17:28  

Yes, exactly. All right, final words of wisdom regarding Buy Now – Pay Later?

Daniel Maksymchak  17:33  

Use it as a tool, not an ability to buy things that you don’t need or that you can’t afford. It can be there to help you to make a large purchase that you need to make that was unexpected, And it can help you to get it so that you can continue to live life while you make arrangements to pay it off. But if it’s not something that you need, and it’s something that’s a frivolity, don’t purchase it just because you don’t have to pay for it now – because eventually, the bill is going to come in and if you don’t have the money, then that’s when it punishes you.

Wayne  18:04  

Terrific, Daniel, always a pleasure to have you on.. My guest today Daniel Maksymchak from LCTaylor, Licensed Insolvency Trustee in Winnipeg, Manitoba and offices in Kenora, Ontario. To schedule that free consultation you can head over to lctaylor.com. 

And that is it for another edition of the Debt Matters podcast. You can subscribe wherever you get your favorite podcasts from and of course, for more information, you can always check out debtmatters.ca Thanks very much for listening.