Why ‘phantom debt’ is haunting the economy

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The golden age of the infomercial might be over but the phrase “just four easy payments of $29.99” is as relevant as ever. Most online shopping now comes with a buy now, pay later button allowing you to break up a payment into four installments with (almost) no strings attached.

While buy now, pay later (BNPL) reduces friction when purchasing, it’s giving some economy watchers the same uneasy feeling you get from putting off a chore for too long. As Americans’ budgets buckle under the weight of inflation and higher interest payments, some worry BNPL is more of an invisible burden than a boon, Bloomberg reports.

Beware the “phantom debt,” a Wells Fargo economist recently warned, referring to the BNPL industry’s short-term loans, which go largely unaccounted for by those tracking Americans’ debt load. That’s because, unlike credit cards and auto loan providers, Afterpay, Affirm, Klarna, and other BNPL providers don’t usually report transactions to credit scoring agencies.

Since consumers must keep their debt under control for the US economy to chug along, let’s unpack what’s going on with BNPL now, instead of putting it off for later.