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Debt counseling: “The awakening came when she could no longer pay”

Debt counseling: “The awakening came when she could no longer pay”
Debt counseling: “The awakening came when she could no longer pay”

German debt counseling is sounding the alarm: more and more people are seeking their help. One reason is purchases made using the “buy now, pay later” payment model, says Marco Rauter, head of a Berlin debt counseling service.

Mr. Rauter, how does the “Buy now, pay later” payment model work?
With “Buy now, pay later” customers can buy goods immediately without paying directly. The purchase price is later debited from the account in installments or in one go. The online retailers are then out of the picture, as the payment service provider assumes the financing and credit risk. Such offers can offer customers more flexibility, but often lead to debt traps.

What is the catch?
“Buy now, pay later” can make purchasing decisions quicker and easier for people, especially younger people. It’s a tempting process and often works with just one click. The danger is simply that buyers lose track – especially with longer payment periods of 30, 60 or 90 days. Buyers then forget what they have already bought because no reminders are sent during the payment period.

Marco Rauter heads the AWO debt and insolvency counseling service in Berlin Southeast. He is also chairman of the board of the Berlin State Association for Debt and Insolvency Counseling eV

© State Working Group for Debt and Insolvency Advice Berlin eV

To person

Marco Rauter heads the AWO debt and insolvency counseling service in Berlin Southeast. He is also chairman of the board of the State Association for Debt and Insolvency Counseling Berlin eV

What happens then?
When the amount is finally debited, the account may not have sufficient funds or several purchases may have been made this way. If there is insufficient income, this can lead to serious financial difficulties, as banks and debt collection agencies will immediately initiate enforcement measures.

Your job is to advise debtors. What do you experience in practice?
We once had an elderly lady in our consultation who said: I use “Buy now, pay later” to buy things when I don’t have any money in my account. She wanted to give her granddaughter a present and knew full well that she couldn’t do it with cash or an EC card at the checkout.

What was the gift?
In the case of the lady in question, it was a laptop. Later, her kitchen appliances broke and she replaced them by paying with “buy now, pay later”. She felt so comfortable with the situation that the rude awakening only came when she could no longer pay the installments. She was overwhelmed by debt and her account was eventually closed.

Which of your clients most often fall into the “buy now, pay later” trap?
It is mainly the group of people who grew up with mobile phones and for whom online shopping is normal. This is the age group in their mid to late twenties. In addition, the Corona lockdowns in 2020 and 2021 led to people who did not shop online discovering this option for themselves. They have kept this habit. That is not a bad thing at first. But people whose account is irregularly covered or who have never learned how to handle money are at higher risk.

We need to improve people’s financial literacy.”

Why?
They spend more than they should in one month and then are shocked that the month was so “expensive”. Some then limit their spending the next month, but there is a risk of missing important payments such as rent or electricity. In our advice we always stress the importance of paying rent and electricity in order not to risk losing your home. The debt problem must still be addressed, whether through installment payments, agreements with the main bank, debt restructuring or help from family, although the latter is becoming increasingly rare.

Shouldn’t payment models like “buy now, pay later” be banned if they are so harmful?
That is simply no longer possible. The system has prevailed. Instead, we need to improve people’s financial literacy through comprehensive offers that ideally begin at school. Another approach would be mechanisms that slow down the online payment process, for example pauses between the individual steps.

What advice do you give to people who are already in debt?
Take advantage of our advice. We know that being in debt can be a shameful experience. We won’t lecture you, we’ll help you.

Source: Stern

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