Most households in the UK have received their first credit card bills in January. The debt repayment demands will usually arrive before the first month’s pay of the New Year. Dealing with this credit card payment is often difficult for households following the Christmas spending over the festive period.

However, there is a new risk with regard to buy now, pay later schemes, offered by many retailers which can affect access to borrowing in subsequent years. These schemes have been recently highlighted by Caroline Siarkiewicz, Acting Chief Executive of the Money and Pensions Service. She emphasised the perils of these schemes on BBC 5 Live’s Wake up to Money programme.

The schemes attract younger people and are quite straightforward. You simply sign up to receive the product and pay for it at a later date. However, many people don’t understand borrowing in this way. It is great if it can be paid off quickly. However, many people are not thinking about the future enough before they sign up to take out the product.

Consumers who take on the buy now, pay later products will be potentially storing up debt problems for the coming months and years. Debt repayments may not kick in until six or twelve months later and it is important that the individuals have budgeted for their increased debt repayments at this point.

However, this kind of borrowing can seem extremely attractive at this time of year as large credit card demands arrive in January and February, and when disposable money is at a premium.

The uptake of buy now, pay later products can lead to difficulties at a later date, especially if the credit card bills and other unsecured lending are not paid off and accumulates month to month. This can quickly turn into what Debt Advisors call a ‘debt spiral’, whereby the debtor struggles to control their debt, but it becomes unmanageable. Consequently, each month more and more debt is taken on to service existing debt.

This situation can often result in insolvency. Being insolvent in its simplest form purely means an individual is unable to service their minimum monthly debts on a month to month basis. This is often the point a debtor will seek professional advice. An insolvent individual has various options available to them, including bankruptcy or the alternative bankruptcy, an Individual Voluntary Arrangement (IVA). Debt Management Plans may be an option in appropriate circumstances; it all depends on the individual’s financial position as to what is the best course of action.

Help is out there however, but often the most difficult thing a debtor does is to make the initial enquiry for help and assistance with their insolvent position.

For confidential debt advice, contact our specialists at Farleys on 0845 287 0939 or contact us by email.