Credit Card vs. Buy Now, Pay Later: Key Differences in Paying Off Debt

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With more and more choices available for consumers to take out loans, it’s important to understand the key differences when it comes to paying off credit card and Buy Not Pay Later (BNPL) debt. While both can offer flexibility, they operate in distinct ways, impact your bank balance and overall financial health differently. Please note, this is not financial advice and you should do your own research before making financial decisions that suit your specific circumstances.

1. Interest & Fees

• Credit Cards: If you don’t pay your balance in full by the due date, interest accrues often at high rates (typically 15-30% APR). Carrying a balance can make purchases significantly more expensive over time.

• BNPL: Most BNPL plans offer interest-free payments if completed on time. However, some services charge late fees or high-interest financing for longer repayment terms.

2. Payment Structure

• Credit Cards: You have flexibility in how much you pay each month—minimum payments, partial payments, or full balance. However, paying only the minimum can lead to long-term debt as well as affect your credit score.

• BNPL: Payments are structured in fixed installments (e.g., over four fortnightly payments or longer-term plans). Missing a payment can result in late fees, the rollback of spending benefits and impact your future borrowing.

3. Credit Score Impact

• Credit Cards: Responsible use (low credit utilization, on-time payments) can improve your credit score. However, maxing out your card or missing payments can hurt your credit.

• BNPL: Many BNPL services don’t report on-time payments to credit bureaus, so they don’t help build credit. However, missed payments may be reported, negatively affecting your score.

4. When to Prioritize Paying Off Each

• If your credit card has a high interest rate, paying it off first can save you money.

• If your BNPL payments are due and you risk late fees, prioritize those first.

• If both accounts have outstanding balances, a strategy like the avalanche method (paying off high-interest debt first) or snowball method (paying off small balances first) can help.

If you can’t make your repayments, in Australia you can reach out to a financial counsellor, like Good Shepherd or search for a financial counsellor near you using the Financial Debt Helpline website.

Credit cards and BNPL offer different advantages and risks. Credit cards provide long-term flexibility but can lead to costly interest, while BNPL offers predictable payments but may encourage overspending. The best strategy is to stay aware of due dates, avoid unnecessary debt, and pay off balances as soon as possible to maintain financial health.

At Lone Shark, we are developing digital products that assist buy now pay later users with tracking their debt. Would you like to be involved? You can give feedback or test our products by getting in touch with us at lonesharkapp @ proton . me