Here's One Scenario Where BNPL Plans Make Sense

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  • "Buy now, pay later" plans let you pay off purchases in installments.
  • Falling behind on these payments could have serious consequences.
  • When you know you have a lump sum of cash coming your way, BNPL plans are less risky, but you still need to be careful.

It may apply to you this holiday season.

Now that we're deep in the throes of the holiday shopping season, you may be up to your ears in wrapping paper and checklists. After all, you only have a few more weeks to purchase gifts for the holidays, and now's the time when retailers tend to run their biggest sales of the year.

Meanwhile, there are different ways you can pay for your holiday purchases this season. You could swipe a debit card and have that money taken out of your checking account. You could swipe a credit card to rack up reward points. Or, you could use a "buy now, pay later" plan, or BNPL plan, and pay for your purchases in installments over a limited window of time.

BNPL plans have their pros and cons. One major benefit is getting extra time to pay for your purchases without having to worry about racking up interest. With a credit card, you accrue interest automatically if you don't pay off your bill in full (the only exception being if you have a 0% introductory interest rate on your credit card).

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Plus, there's no financial penalty at all to using a BNPL plan as long as you stick to your payment schedule. Some consumers are wary of these plans because they assume there are hidden fees, but those generally don't apply in any way as long as you keep up with your scheduled payments.

It's when you fall behind on BNPL plan payments that you can get into trouble. For one thing, that's when you'll have to worry about interest, penalties, and other costly fees. Plus, if you're late on your BNPL plan payments, that activity will get reported to the credit bureaus the same way they're notified of late credit card payments. That could cause credit score damage.

It's for this reason that consumers are often cautioned to stay away from BNPL plans. But there's one situation where they do make sense and aren't such a big risk.

When you're on the cusp of a giant payday

It's common for companies to give out year-end bonuses to top performers. And if you're one of them, you may have a nice pile of cash coming your way at the end of December.

The only problem is, you can't wait to start your holiday shopping until late December. And waiting for your bonus to come in could mean being late with your gifts. So in that situation, you might turn to a BNPL plan to cover your purchases -- and that's not necessarily a poor choice.

Many consumers get in over their heads on BNPL plan payments and fall behind. But if you know for sure that there's a sum of money coming your way, and you spend within that limit, then you're not taking on so much risk.

Let's assume you're getting a $2,000 bonus check on Dec. 31. Even with taxes, you're apt to end up with at least half that sum. If you make a $1,000 purchase and finance it with a BNPL plan, you're not at such a big risk of falling behind because you know that sum is coming your way very soon. But if you were to finance that sort of purchase without the promise of a bonus, well, that's riskier.

Proceed with caution

If you're positive you have money coming your way, a BNPL plan becomes less risky. But even so, it's important to read through the terms of your agreement carefully to understand what it entails. That way, you'll be less likely to miss a payment and face unwanted consequences as a result.

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