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Digital Installment Payment Plans Are Debt in Disguise

You’re browsing for stuff online. Probably not going to buy anything—just looking. And then it catches your eye. A little logo at the bottom of the item you want. The words “only four payments of $17.50” get your attention right away.

Four payments of $17.50? Shoot, that’s a lot cheaper than paying 70 bucks for it. Huh. Maybe I should go ahead and buy this thing.



Pump the brakes.

Don’t do anything until you hear us out on the truth about these digital installment plans.

What Are Digital Installment Plans?

It’s like a digital “buy now, pay later” setup. A digital payment plan breaks up your bill into smaller chunks that you pay over a set amount of time. Think of it as layaway and credit falling in love, getting married, and having a baby. That baby is digital installment plans (and trust us, the baby is really ugly).

The use of digital installment plans is on the rise. In 2019, 24% of online shoppers used the service in the first quarter of the year, and by the third quarter, 30% were using it.1

What Are Some of the Biggest Digital Installment Brands?

If you try to buy something online these days, you might be greeted by one of these heavy hitters in the digital installment world:

  • Afterpay
  • Affirm
  • Klarna
  • Sezzle
  • QuadPay

And although this is a pretty new way to pay for things, it’s clear that people are already relying on these companies. Take Afterpay, for example. They’re now a $1.5 billion company!2

How Do Digital Installment Plans Work?

So, let’s say you’re browsing online and spot a new shirt on sale at your favorite store. It’s a little expensive and out of your budget at $70—but because the store uses a digital installment plan, you can have that shirt delivered to your door and only have to pay $17.50 right now.

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Oh. But wait. There’s more.

Two weeks from now, you’ll owe another $17.50. And another . . . and another—until you pay the balance off. If you’re keeping up with the math here, you’re still paying $70, but it’s broken up into four “easy” payments. But if you miss even one of those payments (oops!), you’ll get hit with a late fee.

For example, if you’re using Afterpay, that fee will be $8 plus whatever amount you owe. And every week you don’t pay, they tack on another $8 until the bill is paid (or the fees total up to 25% of the balance).

Even if you make your payments on time, the big problem here is that it numbs you to the reality of how much you’re spending. Instead of feeling that expensive sticker price, digital installment plans are watering down (in your mind) the amount you’re paying for things. 

Do Digital Installment Plans Make You Spend More Money?

Well, they definitely don’t make you spend less money.

Remember, these companies want you to believe they aren’t out to make a buck off of you. But hey, if people just so happen to spend more when using their service, well, that’s fine with them. And it’s not a secret. These digital installment businesses are actually pretty proud of it.

Afterpay says that using their service increases consumer purchases by 22% and increases the average order price by 20–30%.3 Klarna actually promises even more with 20% higher purchase frequency from customers and 68% of an increase in average order price!4 And not to be shown up by its buddies in the business, Affirm boasts an 92% increase in average order value!5 Is your stomach turning now? Yep, ours too.

The numbers don’t lie—people spend more when they use digital installment plans like these. And it makes sense why. If you get to the checkout online and see you can get $125 worth of items and only have to pay $31.25 now, then you might go ahead and add a few more items you had your eye on.

Get this: In an interview with Ben Pressley, executive vice president of sales, operations and strategy of Afterpay, admitted, “. . . instead of adding three items to a cart, when they use digital installments, they add seven items to their cart. And the basket size changes from $50 to over $100.”6

And Afterpay’s CEO and co-founder Nick Molnar straight up calls Afterpay a “service for millennials that can help them spend responsibly and also help retailers sell more stuff.”7

There you have it. Apparently, if you don’t have enough money to buy what you want, then the “responsible” thing to do is borrow money using a digital installment plan—from a company who’s in this game to help the retailer sell more stuff to you. Why? To get you to rack up more debt so that you’ll come back to buy even more stuff (but not using real money, silly).

Well, that sounds just awesome. Not.

Digital Installment Companies Don’t Have Your Best Interest in Mind

These guys want you to believe they’re different than credit card companies. They aren’t the jerks—they’re the “good guys.” Instead of selling you debt, they want to “help you” buy things you might not be able to pay for right now.

Gosh, that’s really nice of them.

Nope, it’s not. That’s debt, and they’re trying to sell you some.

Don’t be fooled by these guys. They aren’t your friends. They don’t want to swoop in and save the day so you can buy that $250 leather jacket that you feel like you deserve. They want to make money off of you. They’re betting on the chance that you won’t be able to make a payment, and they’ll get to cash in on it. If they can lure you in and make you comfortable, then they’ve got you right where they want you—with your guard down and cozied up with debt.

Digital Installment Plans and Millennials

Say what you want to about millennials, but that generation has their eyes wide open to the pitfalls of debt. They watched the housing crisis of 2008 and saw student loans hit $1.51 trillion.8 And even though household credit card debt just ballooned to more than $930 billion,9 only 33% of those age 29 or younger say they have a credit card.10

Millennials are right to be suspicious of debt. But the sad thing is, they’re still falling for debt and don’t even know it.

It’s millennials who are turning digital installment plans into a thriving business. Despite their deep hatred of debt, they don’t even realize that using a digital installment plan is still debt! And the head honchos at all these companies know that.

Digital Installments Are Just Another Form of Debt

Here’s a pro tip: If it walks like debt, talks like debt, and smells like debt—it’s debt. And these digital installments aren’t any different. They aren’t a smart way to buy things you want, they aren’t more harmless than a credit card, and they aren’t a fancy way to “budget” for a purchase. Digital installments are just wannabe credit cards dressed in shiny clothes, pretending to be your ticket to having it all. Whatever you do, do not fall for it.

Anytime you owe money to anyone else for any reason—it’s debt!

Think about it this way: If you’re one of those fat cats who sells debt, your main goal is to make sure your consumers get really comfortable with their debt. So much so that they don’t even realize it is actually debt! After all, if you trust them, you let your guard down. And when that happens, it’s way easier for them to mess with you.

And unlike a credit card where you have to be approved based on credit history, getting approved for most digital installment plans is easy. Too easy. You just need to be 18 years old, have a bank account and a phone number. This “hey, anyone can use it” idea is a sure way to get into trouble—fast.

Delayed Gratification vs. Instant Gratification

We live in a world where we can get almost anything we want quickly. We’re a culture of impatient and instant people.

Think about it: The Wi-Fi in your house slows down while you’re streaming Netflix—outrage! You post a photo of your adorable pup on Instagram—boom, instant likes. You run out of dish soap, and instead of a trip to the store, you order it on Amazon with 1-Click. It’ll be on your doorstep in two days—which seems like an eternity. Do you need lunch? Preorder it on your app and go pick it up.

We’re all basically Veruca Salt from Willy Wonka running around screaming, “Give it to me now!” Why should we save up for something when we can buy it with pretend money we don’t have—right now.

This is the kind of mindset that credit card companies, loan sharks and, yes, even digital installment companies want you to believe. But here’s the truth: You don’t have to live like that. You can live a life of delayed gratification and still have a great quality of life!

How to Buy Things the Right Way

Hey, we all want to buy stuff. And sometimes we actually need to buy things too. The hard reality is that we might not have the money to foot the entire bill in the moment (sorry, instant gratification). But guess what? Using digital installment plans isn’t the way to do it.

Remember that $70 shirt? If you want to buy it, start saving up for it! Save $17.50 from each paycheck until you have the full $70 to pay for the thing outright. Instead of owing a giant corporation money and taking a chance on whether you’ll miss a payment, use your own money to pay for what you want. No middleman. No hoops to jump through. No feeling like you’re a teenager borrowing money to buy stuff you can’t afford (Afterpay isn’t your Pops).

By saving up for something you want instead of getting it in your hands immediately, you’ll probably appreciate it more. Every time you wear that shirt, you’ll be reminded of the hard work and discipline it took to save up for it. That sure as heck beats looking at the shirt and remembering that you still owe 50 bucks on it!

Sure, saving up for something over time takes willpower. But you can do it! It’s called delayed gratification—give it a try sometime. And doing a monthly budget (aka having a plan for your money) is the key.

With a budget, you can save up to buy something using cash. And you’ll know for sure if you can even afford it and not have to rely on using someone else’s money. Sounds like adulting to us. So step away from the bogus players like Afterpay, Klarna and Affirm, and get to know EveryDollar—a true budgeting tool that empowers you to use your money to buy what you want.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

It's Easier Than You Think! 

It's Easier Than You Think! 

The right budgeting app will help you find money.
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It's Easier Than You Think! 

The right budgeting app will help you find money.
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