Debt: 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. If you find yourself needing to borrow for items and services that you need to live 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 or other support. We’ll 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 that I want? Maybe you do need it, but do you need it right now? Or could you save and wait a little instead? For example, you might be thinking about buying a new coat. Perhaps considering whether to spread the cost with a buy now, pay later service. These decisions 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 could spread the cost. The retailer wins, but do you? 

Say you see a coat that costs £60 but you only have £45. That means you’re £15 short. A buy now, pay later option might split the cost into three 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 the 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. So in a case like this, it may be better to hold off buying until you’ve got the full amount.

A common trap here is to take on more than one buy now, pay later scheme at the same time. With these products, the risk isn’t just what you borrow, it’s how many plans you’re juggling. And not all of these products are FCA regulated. Take your time to make sure this is right for you. 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 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 is buying a new sofa. Now you might definitely need one, but that particular style you’ve been eyeing – is it a want or a need? Home purchases can get complicated emotionally. We might feel pressure to keep up with others or to get the best item we can because of past bad experiences. 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 needed to end the agreement early? For example, 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.

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