The Big Money Mirage

By MN Gordon – Economic Prisim

What’s important to recognize is that the $1.28 trillion in credit card balances reported by the New York Fed understates consumer debt levels. That’s because of the phantom debt of buy now, pay later (BNPL) debt.

These short-term, point-of-sale financing options allow consumers to purchase goods immediately and pay for them in interest-free installments, typically over a few weeks or months. Often referred to as pay-in-four plans, split payments, or interest-free installment loans, BNPL services like Klarna, Affirm, and Afterpay require only a small down payment, usually 25 percent, with the remainder paid in automatic installments.

Since these short-term loans often bypass traditional credit reporting until they go into default, no one knows the full picture of how underwater the average shopper is.