With Christmas fast approaching and household budgets under increasing pressure, more Australians are turning to buy now, pay later schemes to help make ends meet.

Once reserved for discretionary purchases, the payment services are increasingly being used to cover everyday essentials including rent, groceries and household bills.

WATCH THE VIDEO ABOVE: ‘Buy now, pay later’ unpacked

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But while the schemes can offer a useful way to manage cash flow, financial wellness coach Betsy Westcott has warned Australians to be careful about which options they use, cautioning some could leave households in an even deeper financial hole.

On Sunrise on Monday, Westcott warned it was important for users to proceed with caution when using the services.

“It’s really important to know which ones actually help smooth out your cash flow and which ones actually dig you into a bigger debt hole,” she said.

The perks of paying later

Not all payment plans are created equal, with Westcott noting there were several options that could help people manage their expenses without accumulating unnecessary fees.

One of the best places to start, she said, was by contacting service providers directly to negotiate more managable payment arrangements.

“Often it’s better to use the ones you don’t actually have to apply for,” she said.

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“Talk to your utility provider and say, ‘Can you actually help me smooth the bills or get on a payment plan?’.”

Financial wellness coach Betsy Westcott said there were several options to help people manage their expenses without accumulating unnecessary fees.  Credit: Sunrise

Westcott said people experiencing financial hardship could also benefit from arrangements that removed additional charges.

She also recommended no-interest loans for essential purchases, such as replacing a fridge or paying for car repairs.

Other options included using a bank’s pay-in-four service as a one-off, traditional lay-by at major retailers and Centrepay for eligible Australians receiving Centrelink payments.

She said Centrepay could help users manage essential expenses, including rent and bills, by deducting payments directly from their Centrelink benefits.

The pitfalls to watch out for

While some services can provide breathing room, Westcott warned against using products that effectively bring future income forward or charge additional fees to cover essential expenses.

One of the biggest concerns is the additional charge behind accessing that flexibility.

“So on a $515 a week rent, a 5 per cent fee is an extra $25,” she said.

“That really adds up.”

Ultimately, the bigger concern is that these services do not solve the underlying financial problem.

“They don’t actually plug the gap. They just defer it,” she said.

Westcott warned that accessing wages early could leave people short when their next pay cycle arrives, potentially forcing them to borrow again.

“That’s where you can really get into the debt spiral,” she said.

What to do if you’re already struggling

For anyone who feels they are becoming trapped in a cycle of repayments, Westcott said the first step should be reaching out for help rather than turning to another payment app.

She encouraged Australians to contact the hardship teams at their banks, utility providers, or buy-now, pay-later services to discuss their circumstances and available support.

“Your bank, your utility provider, even your buy now, pay later, they all have them,” she said.

“They’d rather work with you than chase you.”

Westcott also recommended contacting the National Debt Helpline on 1800 007 007, where trained financial counsellors can help people get their finances back on track.

She said ASIC’s MoneySmart website was also a useful resource, offering free, factual financial guidance without trying to sell consumers a product.