There’s one group of economist and financial analyst that says spending by the U.S consumer is still strong, and another group of economist and financial analyst that will disagree.
The group that disagrees says a major slowdown is about to occur over the next several months when it comes to consumer debt.
That debt is referred to as “phantom debt or ghost debt.” It’s called Buy Now Pay Later (BNPL)
Here’s what happens.
Consumer debt is now over $1 trillion dollars and increasing. So, consumers are maxed out on their credit card, have no saving left over, maybe borrowing from their 4O1k and have to buy basic necessities just to keep up. That is where the BNPL offer comes in. It is sold to consumers as a loan to make purchases and pay for it over time with no interest or a low fixed interest rate.
And the program has been gaining in popularity. CNBC reported that over last year’s holiday shopping season, those using the BNPL spent billions, an all-time high – up 14% over the past year.
Juniper Research says consumers transactions using BNPL will total over $334 billion in 2024 and increase to $687 billion by 2028. A 105% growth.
Most of the people using BNPL are those making less than $50,000 a year.
While the program looks attractive, the ramification on consumers is profound, often in a negative way.
Consumer credit score: Most companies don’t report these loans and the payment history to credit bureaus such as Equifax, Experian and TransUnion, , which if paid on time would boost one’s credit score.
Interest Rate: Thought credit card fees and interest rates have ballooned, the rate from the BNPL is even higher with some at 36%.
Analysts point out these loans, a missed payment could incur a late fee, which could trigger a mountain of deferred interest.
A study by the Federal Reserve Bank of Kansas City found that nearly 20% of BNPL customers were falling behind on payments and around 33% who paid their bill within a month had borrowed the money from another lender, which compounds debt with et more debt.
Another problem analyst note since the credit ratings agencies have no clue how much debt is out there, they believe there is another $700 billion in debt that isn’t being accounted for.
