What shopping trend does Suze Orman consider the ‘gateway to overspending'?

This has prompted personal finance expert Suze Orman to call BNPL a “gateway to overspending.”

Here’s more on why Orman feels they’re a slippery slope and what she recommends you do instead.

What worries Suze Orman about BNPL plans

BNPL programs are generally structured to only require 25% down at the time of purchase. You’ll pay off the remaining balance in another few payments every few weeks — all with no interest (provided you make your payments on time).

“When you only have to pay $25 immediately for a $100 purchase, your brain starts playing tricks on you, and tells you that this is such a great deal, because it’s only costing you $25,” she explains.

The science of overspending

“What seems like a great deal can actually be a gateway to overspending,” explains Orman.

In the FCAC report, 15% of respondents noted that they had to make unfavourable trade-offs in order to make a payment on time, including delaying the payment of another bill, incurring an overdraft on the bank account, exceeding their credit card limit or having to take out a loan or cash advance.

In addition to overspending, BNPL options can lead to other financial issues, especially since knowledge about how these payment plans work can be confusing for the average consumer. That same FCAC report found that 44% of respondents found it difficult to understand the impact that missing a payment can have ont their credit score, 36% don't understand how to resolve a dispute, while 21% found it difficult to understand the penalties or interest charges related to missed or partial payments.

Missing a payment will not only result in a late charge, but they can also negatively affect your credit score.

What Suze Orman suggests instead

First, Orman suggests assessing whether the purchase is a need or a want. When it’s a want, she encourages you to answer the following question: Can you actually afford it?

“It’s not just a matter of being able to make all the payments on time,” she writes in her blog. “The bigger issue is what you might be able to do with those dollars if you didn’t use them to buy that want.”

Instead, Orman has a few suggestions of the financial goals you should prioritize before caving to purchasing decisions you can’t realistically afford. Her list includes:

Prepare for emergencies 

Orman says the recent years of economic instability, health concerns and global supply chain insecurity highlighted the need for each person to set aside a robust emergency fund. She recommends having a full year’s worth of living expenses set aside and advises people to avoid relying on easily-accessible debt and, instead, stash your cash in a saving account. By putting your money aside — preferrably in a high-interest savings account — it's easily accessed but will continue to grow, so you don't lose purchasing power due to inflation.

To find a high-interest savings account that meets your needs, check out the Money guide on best high interest savings accounts. Good options include:

EQ Bank: