Needs vs. wants

This video is about what you should consider before taking on debt – but it’s important to note that everyone has been squeezed by rising costs, and financial pressure can affect people in many different situations. If you find yourself needing to borrow for essential living costs like food, rent, gas or electricity – this is really tough.

If this is more than a one-off, it is worth contacting support services to find out what help might be available to you – whether through state benefits, welfare support organisations, military charities or financial advice providers.

We will now look at what you need to consider before borrowing money. Ask yourself, do I really need what I’m trying to buy, or is it just something I want? And if I do need it – do I need it right now, or could I wait and save instead?

For example, it may be your partner’s birthday or anniversary and you really want to get them something special. You don’t have the full amount upfront, so you choose to spread the cost with a buy now, pay later service. This decision might feel minor, but can have negative consequences.

Retailers are promoting buy now pay later schemes precisely because they know people will spend more than they intend to when they can spread the cost. The retailer wins, but do you?

Say the gift costs £60 but you only have £45 – you’re £15 short. A buy now, pay later option might split the cost into 3 payments of £20. That leaves you with £25 in your pocket today, but you still owe £40.

The risk is, instead of saving that £25 for the repayments, you spend it on other things, and that’s a temptation that most of us would find hard to resist. Before you know it, you’re in £40 worth of debt, when you only needed £15.

This is a small example of a situation that might repeat and then spiral without you realising. Three months later, it’s Christmas payday, and the buy now, pay later repayments you scheduled come out. Suddenly you’ve got less in your account than you expected, but you still want to buy presents, so you put those on buy now, pay later as well.

It’s now easy to see how quickly a seemingly minor decision can spiral out of control. So in a case like this, it may be better to hold off buying until you’ve got the full amount.

Anticipating your spending across the year and when this might be particularly high like in the lead up to Christmas, will allow you to plan. Check out our video on lean periods for more information.

A common trap here is to take on more than one buy now, pay later product at the same time. With these products the risk isn’t just what you borrow – it’s how many plans you’re juggling. So be sure to take your time to make sure this is right for you.

You might have these buy now, pay later agreements with multiple companies, some weekly, some monthly, and without one central place to see it all, it can become a real challenge to keep track. This is often how payments are missed.

It’s also important to note that while most buy now pay later options are available interest-free, late or missed payments could result in added interest and fees. If you choose to use buy now pay later, keep an eye out for payment reminders usually sent to your email or add calendar reminders for payment dates.

Another example might be buying a new sofa or other furniture. Let’s say you’re moving into new Service Family Accommodation and it’s only part-furnished or unfurnished. You might genuinely need furniture for your new home or when moving between postings, but the particular style you’ve been eyeing – is it a want or a need?

Home purchases can feel emotional – wanting comfort, feeling pressure to keep up, or buying quickly before a move or deployment. But the crucial question is: are the monthly finance payments affordable not just now, but a year from now, and all the way until the term is up?

It’s also important to understand how flexible the loan is. What would happen if you couldn’t keep up with payments, or your situation changed? Would there be penalties or extra costs? Make sure that you read the small print.

Loans like these are another case where the organisation selling you the item often benefits from you taking on debt. They get the profit from selling, sometimes upselling you a sofa, and they might also profit or get a commission from selling you the loan to pay for it.

If you must take out a loan for a big purchase like this, then you may be able to find one from another lender at a cheaper price.

So, before deciding to borrow, pause and separate your needs from your wants. Ask yourself whether you really need the item now. Be wary of credit options like buy now, pay later, which can spiral quickly, especially if you juggle multiple plans. If you do need to borrow, check the full cost, flexibility, and repayments so the choice works for your future, not just today.

To learn more about the different ways to borrow and how they work, you may want to watch our video on borrowing options.