"Buy Now, Pay Later" is Dead

There’s good debt and bad debt. We’re seeing a rise of bad debt in America.

When you buy a home with a mortgage, that’s good debt. Great debt, even, depending on the circumstances.

Most people don’t have enough cash to buy a home. The average home costs $400,000 in America. When interest rates are low and markets are stable, anyone with their head on somewhat straight will take advantage of their mortgage by investing cash into stocks or other assets while the value of the home rises.

Instead of saving up for years and years to one day buy a home outright, you can put a small sum down, pay your monthly dues, and invest whatever excess cash you have into appreciating assets that can quickly be liquidated.

Worst case scenario, you can always sell the house. Most of the time, you’re going to make more than the outstanding balance of your mortgage.

There is a lot of bad debt out there, though, and it’s only growing.

Bad debt includes car loans, credit cards, and basically any form of an money tied up into a depreciating asset.

Cars are a depreciating asset 99% of the time. If you’re buying high-end or vintage vehicles, you might make a profit. But buying a brand new Jeep off the lot is a sunk cost. It’s only worthwhile if you plan on owning it for a long time

In a bustling economy, debt is necessary to keep money flowing. People want new cars, clothes, and other items. The money spent on these items pays salaries, it pays bills, it floats throughout this massive country of ours.

Most people don’t have a lot of cash on hand. To make big purchases, people need access to debt. All they have to do is pay it back over time, with some interest on top.

But it’s not always the case that people are investing their cash reserves. They are taking bad debt and using said cash reserves to pay off that debt, over and over throughout their lives.

Over the last five years, non-housing debt has risen from $4.2 trillion to $5 trillion. That’s a 20% jump, which may not sound too crazy, but represents an extra $2,300 in debt per person.

The overall number represents $14,700 of debt per US citizen. Keep in mind that this does not include mortgage debt.

Manageable, right? Well, delinquency on consumer debt is up to 2.77% — the highest it’s been since 2014. Still a relatively small number, though…

But then you look at Klarna, the “revolutionary” buy now, pay later company that doubled its year-over-year losses in the first quarter of 2025. Losses, of course, means consumers not paying their bills.

What a good way to rack up debt. By going to Target, or Apple, or almost anywhere, and splitting your purchase into four interest-free payments! It’s only interest-free if you pay it back in those 30 days, however.

Klarna hoped to get in on the action of the bustling US economy by giving people a free month to buy stuff before having to eat the bill. What they’re learning now is that when you give people a chance to buy things on someone else’s dime, they will take advantage of that.

Over one-third of Klarna users admitted to paying late, while 0.54% have paid nothing back. These small numbers add up when considering the losses equals tens of millions of dollars.

Klarna isn’t dead yet, but it’s getting there. As more people hop on the gravy train of free money, that’s going to be more debt Klarna is going to count as a loss on its financial statements.

Credit only matters to the people that use it wisely. People that have no hopes of owning a home, building a business, or growing in any sense will take money from Klarna, Chase, or any other lender and never pay it back.

When this happens, lenders tighten up who they give to and the economy slams on the breaks.

Maybe that’s exactly what we need.