NerdWallet's Smart Money Podcast - Stop Assuming Payment Plans Are a Debt Trap and Start Doing the Math

Episode Date: July 9, 2026

Learn what's in a rare bipartisan housing bill in Congress, then find out whether a credit card payment plan beats buy now, pay later. Why did a housing bill with overwhelming bipartisan support suddenly stall on the president's desk? Hosts Sean Pyles, CFP©, and Elizabeth Ayoola are joined by senior news writer Anna Helhoski, and mortgage writers Abby Badach Doyle and Kate Wood to unpack the 21st Century ROAD to Housing Act. It’s a nearly 400-page bill designed to ease the national housing shortage by cutting federal red tape around permitting, expanding small-dollar mortgages, limiting large institutional investors from buying more single-family homes, and creating incentives — not mandates — for local governments to build more housing, including manufactured homes and accessory dwelling units. Then, Sean and Elizabeth are joined by credit cards Nerd and NerdWallet spokesperson Sara Rathner to help a listener named Emma decide how to pay off a large purchase without draining her savings. They walk through how to compare the fees on a credit card issuer's payment plan against your card's regular APR, how these plans differ from third-party buy now, pay later services, and whether either option can help — or hurt — your credit score. Locked Out: 3 Outdated Myths About Manufactured Homes: https://www.nerdwallet.com/mortgages/news/locked-out-manufactured-homes-affordable-housing-crisis Best 0% APR Credit Cards of July 2026: https://www.nerdwallet.com/credit-cards/best/zero-percent Subscribe to our podcast's free email newsletter for bonus content and more from our hosts at https://smartmoney-nerdwallet.beehiiv.com/ Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices

A bill just passed Congress with rare, overwhelming bipartisan support. It's designed to make building homes cheaper and easier, but there's a catch, which will untangle today. Welcome to Nerd Wallet's Smart Money Podcast, where you send us your money questions, and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayala. Now, later during the episode, we're going to be digging into payment plans. But of course, before then, we have our Money News Roundup, where we break down the latest in the world of finance.

to help you be smarter with your money. And guess what? Guess who's back? Back again. Does anyone know that song? Okay, I'll stop singing now. Anna's back. Hey, Anna.

Welcome back, Anna. I am back. Thank you both. So you had five weeks off for a sabbatical. A wonderful perk that NerdWallet offers those who stay here quite a long time. What did you do? Yes. I hung out a lot at home.

And then I went to London with my mom for a week. Then I went to Paris and had an amazing time by myself. and then I went to Ireland, took a boat out to an island and searched for puffins. And I found some, and it was awesome. I just have one follow-up question, Anna. How were you able to come back to work? Oh, I mean, barely, but here I am, and we're going to talk about some fun stuff today. All right.

Fun, you know, quote unquote. Well, let's get into it. So I don't want to shock anybody with this hot take, but Congress doesn't tend to agree on much. When a major bill actually wins strong bipartisan support, I think it's worth our attention. And today we're talking about the 21st century Road to Housing Act. It's a new bill that aims to lower housing costs by making it easier and less expensive to build new homes. Now, one overwhelming bipartisan support and Congress passed it on June 23rd. But then the next day, President Trump balked at the bill, canceled the plan signing ceremony, and said he wouldn't sign it unless Congress passed the Save America Act.

Now, that bill is totally unrelated to housing, and it's also incredibly controversial. Its goal is to tighten voter ID requirements and most certainly does not have bipartisan support. But that's kept the housing bill in limbo, at least for now. And even so, as I mentioned, it still has broad bipartisan backing, and advocates remain hopeful about the bill's likelihood of becoming a law, and that could be as early as July 10th. Now, that's a table setting for what's happening with the Road to Housing Act, but let's actually unpack what it means. To help me out, we're joined by mortgage writers Abby Bade at Doyle and Kate Wood.

Welcome back. Thanks, Anna. Hey, thanks for having us. Before we get into the details of this legislation, I think it's worth acknowledging something that no matter where you're falling politically, a lot of Americans are exhausted by the drama in Washington. I know that I am. We just want the government to function properly.

Is that too much to ask? It seems like it might be. So when lawmakers from both parties come together on a package like this, it is something that makes you sit up and take notice. Yeah, it does. And, you know, despite the late stage drama, this is ultimately a hopeful story about lawmakers putting differences aside to get the work done. So, yes, we're going to take the political tea and put it on the back burner for a few minutes and talk about what this bill is actually about, which is helping to solve the housing shortage. Okay, I'm hoping that you can give us some background in the housing shortage. What does that look like? Well, it's pretty simple. Basically, we do not have enough available homes for the number of people who want to buy one.

Estimates vary, but depending on how you run the numbers, experts say that we need something on the order of three to five million more homes for supply to actually meet demand. So picture today's average first-time home buyer, who we know is around 40 years old, elder millennials represent. A housing shortage means that that person's home search is already starting as an uphill battle because they don't have as many homes to choose from as their parents or their grandparents did. and with more buyers competing for fewer homes, prices are higher, too. Now, does the housing shortage mainly affect first-time buyers? No, but first-time buyers do tend to get the brunt of it, and part of that comes from decades of building trends. Builders want to make a profit, right?

So they've turned to building larger, higher-priced homes, the kind of home that's usually out of reach for a first-time home buyer budget. And as a result, we have a nationwide shortage of new starter homes. or places with smaller square footage at a lower price point. And building trends are just one of many reasons for the housing shortage. So there's no one cause and it can't be fixed by one solution, right? So that's why the 21st century Road to Housing Act is such a massive bill. It's designed to approach the problem from multiple angles.

Massive is the right word. This bill is almost 400 pages long. So it's not exactly a summer beach read. Now, Kate, if you had to boil it down, what are some of the key things? that our listeners should know about. So yes, it is a genormous bill. It has dozens of separate provisions, but there are a couple of big themes that you kind of see throughout. The biggest focus is, like we keep implying, making it easier to build new homes. And a lot of that is accomplished by cutting federal red tape around permitting, regulations, environmental reviews, stuff like that.

There's also a good amount of stuff in there to support homebuyers, particularly those with a smaller budget, whether they're a first time or or not. For example, the bill makes it easier to finance lower cost homes by expanding access to small dollar mortgages. So that's mortgages that are under $100,000. Historically, those can actually be really hard to find. It also gives first-time buyers more support by strengthening things like housing counseling and financial literacy programs. Another biggie that we have to shout out. We've talked about it on this very podcast is that this bill also makes it easier to build and finance manufactured homes. So these are the factory built homes that can offer a more affordable path to homeownership. We went deep on this last month, so

check out that episode if you haven't already. Definitely check out that episode. I'll say it again. Manufactured homes are the tinned fish of the housing market and they deserve to be trendy. Now, what about the so-called investor ban? Did that make it into the final version? It did, but in a more limited form than what was originally proposed. As it stands, the bill would prevent the largest institutional investors from buying more existing single-family homes. It's not making them divest, but they can't buy more. And in this case, when we meet, say, large investors, we mean an investor that owns at least 350 single-family homes. So these aren't individuals generally.

These are companies. It also, though, carves out an exception for build-to-rent projects. So if they are actually building the single-family homes, then renting them, yep, they get to keep those investment properties as well. And this is another one that we've covered on Smart Money. So back in March, we went through all of this, really breaking down that this is not the game changer that some people probably imagine, even though these investors are really convenient bad guys, these big institutional investors are actually a pretty small part of the market.

So the bill is mainly beneficial if you're buying a home or trying to buy one, but what if you already own one? Is there anything the bill for existing homeowners or even landlords? Surprisingly, there are a couple wins in there. First, this bill makes it easier for existing homeowners to add a backyard cottage or an in-law suite by expanding financing options for accessory dwelling units called ADUs. Also, the bill recognizes that we don't just need to build more housing. We need to take care of the housing that we already have. So the bill gives low and moderate income homeowners help to do that. It sets aside grant funds and forgivable loans to help property owners fix up aging homes, including rental properties. So we've covered several of the biggest

takeaways in this bill. But Kate, what makes this package different from previous housing legislation? In the past, most federal housing policies have focused on helping people afford homes that already exist. So these are individual demand-focused approaches, things like tax credits or vouchers. This bill takes a different tack by focusing on the supply side. And it also does so well acknowledging that most housing policy is determined at the local level, right? Not at the federal level. It does this, however, not by telling cities or towns what to do, but by creating incentives to encourage communities to build more housing. It does what it can on the federal side by doing things like reducing or removing some of the layers of bureaucracy you'd have to get through to get construction projects off the ground.

But a lot of the work is going to need to happen locally. Also, the 21st century Road to Housing Act isn't a spendy bill. Those incentives for communities to build housing, those grant funds. It's all coming from using existing funds more wisely rather than asking for a bunch of new federal dollars. Why does this bill put so much emphasis on new construction as opposed to modifying existing housing? So the big picture is balancing supply and demand like we talked about earlier, but picture that first-time buyer again. Since today's new construction homes tend to be large, more expensive, probably out of the budget for a first-time buyer. First-time buyers often end up looking at older homes, and that's not always easy from a financial standpoint.

I know all about this, okay? an old house that is cheap to buy is likely to be expensive to own, right? With an older home, it's got workmanship, it's got character, it's also got years of wear and tear, which might also mean years of deferred maintenance. So you're potentially looking at a lower purchase price that's about to be offset by some big take-care repairs or by just trying to get back on track with maintenance. To be clear, neither of us are knocking old houses. My house is almost 100 years old and I love it. Kate and we all know you have a soft spot for old houses too. 10,000%.

Old houses just aren't the right fit for everyone and they aren't necessarily helping buyers save money. And that's why new construction matters. Building more new homes gives first-time buyers more options. So an affordable home doesn't have to mean an older home with expensive repairs waiting around the corner. Whenever people are hearing build more housing, there's often a fear that communities are going to lose their unique character or their personality. With all this focus on new construction, does that mean everyone's going to have a cookie cutter,

Stepford neighborhood? Right. Nobody wants that, right? And that's actually one of the more interesting parts of the bill is that, like Kate mentioned, it doesn't tell states or cities exactly what to build. It gives communities grant funding to decide for themselves. One solution the bill encourages is something that's known as a pattern book. So think of that as a library of pre-approved home designs, everything from ADUs,

to duplexes and townhomes, a community can choose designs that fit its local character and then get them approved in advance. And then builders can use those pre-approved plans so that they're not starting from scratch every time. And that saves time. It reduces costs. And it makes it easier to build more housing that still looks and feels like it belongs in that unique neighborhood. Instead of imposing a federal mandate, this bill is mostly using incentives, right? It's basically like, hey, your community wants more housing, like, here are the ways that we can help. And importantly, Abby just kind of alluded to this, it's not just about building single family homes, right? The bill supports a wide range of housing. And so that includes things like apartments

and rentals and multifamily homes, manufactured homes, ADUs. So communities can choose the solutions that are going to make the most sense locally. Some of the most interesting provisions actually provide grant funding for really specific housing projects, like fixing up manufactured home parks or converting vacant office buildings into apartments. Housing is a national problem, but ultimately it's a local issue, and this is for local governments to decide. I mentioned several times before that there's widespread support in Congress for this bill. But despite that support, every major bill is going to have its critics. What are the detractors saying about this one? One big criticism is that this won't be enough on its own, right? So you've got housing experts

who are saying this bill's a great step, but it's not going to overcome high mortgage rates or It's not enough to counterweight local zoning rules. For me, solving some of the things is better than doing nothing and solving zero of the things. But, you know, not everyone agrees with that. Some people are like it needs to be even more comprehensive. And then on the flip side, other people are arguing that the bill goes too far in some areas, like weakening environmental regulations. So that could put new construction at risk of things like extreme heat or flooding from sea level rise.

While there is broad agreement that we need more housing, there's still plenty of debate about the best way to get there. Now, let's talk about timing. If this bill becomes law, when would people actually start to feel the effects? We do not want to oversell how quickly this bill could make change happen. So if this becomes a lot, these are long-term solutions like capital L long-term. Building takes time, changing permitting and zoning rules takes time. Local governments have to decide whether they'll even participate.

Even if you're in a municipality that's really enthusiastic about this, totally on board, we are talking about years, not weeks or months. If you're hoping to buy a home later this year, the changes in this bill probably won't affect you all that much. And you still want to focus on those things that you can control, like your savings, your credit score, and really understanding how much house you can afford. All right, you two, bottom line, if someone listening is hoping to buy a home in the next few years, how much of a difference could this bill actually make if it's signed into law?

Our housing shortage took decades to create. It will not disappear overnight. But this bill tackles some of the root causes. is by making it easier to build more homes and by encouraging municipalities to make existing spaces more livable. So if it becomes law, it won't solve everything, but it's a meaningful step in the right direction. And you know what?

Five years out, we are probably starting to see some changes. And maybe the biggest takeaway is that housing doesn't have to be a partisan issue. No matter your politics, most people can agree that finding an affordable place to live should not be this hard. We can all agree on that. Now, Abby and Kate, thanks so much for joining us. Thanks, Anna. Oh, thanks for having us.

And thank you, Anna. I'm crossing my fingers and toes, hoping this bill becomes law, this 400-page bill. And I also wanted to let you know, Abby, that I have been eating sardines all week. Yes. In cardines. All right. Up next, we get into credit card payment plans. Are they any better than buy now, pay later, or just another debt trap?

But before we get into that, a reminder to send us your money questions. The show runs on your financial questions, so send them our way. you can call us or text us on the nerd hotline at 901-730-6373. That's 901-730 nerd. Or email us at podcast at nerdwollad.com. We're also on YouTube, so please go and Google us and follow us and watch our videos. In the meantime, we'll be back in a moment. Stay with us.

Today's question comes from Emma by email, and it's about whether credit card payment plans are a go or a no. Hello, I love your podcast, and I have a question about credit card pay plans. I'm a graduate student and I just bought a ton of furnishings from my new apartment as well as paid for some hefty vet bills and expensive textbooks. I have enough money to cover it, but it would be cutting into my savings more than I'd like. Bank of America recently rolled out something where you can take eligible purchases and make pay plans through them after the thought. Any purchase above $100 is eligible and you can pay it off in three or six months with a monthly fee of around $5 or less. The APR on my cards are about 17% on one and about 27% on the other. I'm wondering when pay plans are worth it, specifically one through your own bank slash credit

card company. I've always been wary of layaway plans and the such, but this feels different than just through my bank. I know y'all have done a few buy now pay later episodes, but I'm wondering if this differs at all and how it differs. Does it impact your credit? When is it beneficial and who is it beneficial for? Is it silly to do this payment plan after purchasing and bypassing available layaway slash buy now pay later options at the time of purchase?

Does it impact my credit card rewards? Would it be worth it for my credit card with higher APR that also has a higher credit limit? Thanks, Emma. To help us answer this question, we are joined by No Stranger to the Pod, Nerdwallet spokesperson, and credit card writer Sarah Raffner. Hey, Sarah, welcome back. Hi, thanks for having me. I'm excited to answer all of Emma's questions. So when I log into my credit card account, I hate doing that.

But when I do have a balance, like Emma, I have seen the offer to split my purchase into several payments over time. And honestly, I've never been curious enough to investigate so that I could answer Emma's questions myself because I try to pay off my balance in full. So tell us what are credit card payment plans and how do they work? I've seen this too. And those of you listening might have seen these options when you look at your own recent charges because a lot of different major credit cards. card issuers offer the option to take a recent purchase that's a minimum amount, say, $75 or $100 or more, and apply a payment plan or installment plan to that purchase. So instead of adding it to your usual credit card bill, it now becomes an installment plan, and you can pay it off in four

payments. You could pay it off over three months, six months, sometimes even longer, depending on the plan. And it seems like Emma is looking for the most cost-effective way to pay off their balance from large purchases and they kind of have two options, gradually pay off the balance on the credit card that have, again, that 17 and 27% APRs, which are pretty high, or using a credit card payment plan, which they mentioned has a monthly fee of around $5 or less. So Sarah, what do you think about how people can determine whether it's more cost effective to use a credit card payment plan or just pay off the balance on your credit card over time using your existing APR? It really comes down to the math because if you're going to carry a balance for month to month on your credit card,

depending on your card's interest rate, that could grow pretty quickly. And Emma mentioned a credit card with an APR of 27%, which is above the average credit card interest rate. That's pretty high. Here's an actual example with real numbers. If you put a $1,000 charge on a card with 22% interest rate, let's say that $1,000 bought a new couch, and then you paid it off over six months, then you spent $65 on interest. Emma said the plan that they were offered charged a monthly fee of $5. So over six months, if the plan allowed you to pay it off over that time frame, you would end up spending $30 in fees instead of $65 in interest. So that's why it's good to compare the overall cost of different forms of borrowing, because the cheapest option might actually surprise you. We

gravitate toward what's familiar, but a newer option or a different option might actually be less expensive. You do want to just be mindful, though, that the risk of carrying any sort of credit card balance, including these installment plans, because this is a form of borrowing, especially if you're going to continue adding charges to the card because spending doesn't stop just because you have debt, that's where you just run the risk of your balance growing and growing and growing, and pretty quickly it's unsustainable for you to be able to pay it down. And so you just want to be mindful before taking on any sort of borrowing instead of paying for purchases outright. How is this going to affect your financial decision-making over the next couple of months?

Yeah, there are a lot of behavioral risks around credit cards and just continuing to add to your balance when you think you have a plan to paying it off is one of those big risks. You want to be very strategic about actually minimizing your balance and getting it to zero at the end of that payment period. But I do kind of like the strategy of using it as almost an oops, I charge too much in my credit card, let me pay it off in a less expensive way. Because as you illustrated, Sarah, it would cost less than half the amount of interest if you went with the payment plan option versus just paying it off via the APR.

Yeah, because typically these payment plans either charge a fixed fee. It's a small percentage of the amount that you borrow or they charge a lower APR than your credit card typically charges. And so that's why it's important to do the math because it could end up being the less expensive way to borrow. You just want to be able to make all those payments on time. I think it might be smart for someone to consider if they're going to be doing something like this. Maybe what's the buy now pay later costs? what is the credit card payment plan cost and what would be actual credit card APR cost of doing this if you're going to go one of these three routes. I want to talk about other balances that people might have.

So how does enrolling in a purchase payment plan affect other balances that Emma might owe? Does any other existing balance keep accruing interest in the background? I imagine the case would be yes. It would, yes. So the monthly payments for one of these installment payment plans get added to the minimum required payment on your credit card each month. So whenever you receive your credit card statement, it says this is what you actually owe. This is your current balance, but you have to at least pay this smaller number. So that smaller number is going to grow because it's going to include what you owe for the payment plan.

So until you pay that payment plan off, your minimum balance due is just going to be higher. Now, other balances above and beyond that can still accrue interest, but the way to avoid paying interest is to pay those charges off in full on time, when your credit card payment is due. I think it's just a reminder that when you've overspent or when you've made a large purchase, you just have to remember no matter what kind of payment plan you use to try to keep your spending low until you clear that balance and not maybe keep spending at the same pace that you are.

As you're explaining these payment plans there, they sound a lot to me like buy now, pay later plans. And I think many people have heard of those, but for those who haven't, it allows you to split your payments over six weeks, interest-free, but many of the plans sometimes come with fees. Now, what is the difference between the plans that we're talking about that can come from your bank or your credit card providers and then a buy now pay later plan? I mean, they're basically all the same thing.

They're just provided by different companies. So sometimes their payoff in six weeks. They might also provide longer payoff timeframes six months, a year. It just kind of depends on what you qualify for. And then you might be presented with several different payment time frame options and interest rate options and fee options. And then it's up to you to decide if any of them are the most appealing to you. So then you enter into the plan. And so the main difference is with a, what I call like a third party buy now pay later plan,

you might have heard of some of these companies like Klarna and after pay in a firm. These are often offered to you at checkout. So when you make a purchase, that's your decision point. Do I want to enter into a payment plan with this provider when I make the purchase? And oftentimes these providers partner with retailers. So different retailers offer different companies. as providers for these plans. The credit card option allows you to apply this retroactively to a recent purchase. So you can make the purchase as you normally would and then think about it for a

little bit and then decide whether or not you want to split that purchase into installments. I'm not a big fan of Buy Now Pay Later. It has gotten a reputation for being a debt trap, especially for younger consumers. And it seems like Emma shares those consensiments because they describe themselves as wary of layway and buy now pay later, but they say that the credit car payment plan feels different because it's through their bank. So do credit card payment plans carry the same risk as buy now pay later in terms of being a potential debt trap or is it different? Nope, they are all equally debt traps. Great. That's what I thought. There's no nicer way I can put that. Listen, the risk with any buy now pay later plan, regardless of who the provider is,

is that when you miss payments, if that happens, and it does happen, that's when they can hurt your credit score. So, like I said before, you want to think of this as a form of borrowing. You want to be a little afraid of it because fear is that incredible motivator to make those payments on time because you're afraid of the consequences. And so I think if you're going to enter into one of these plans, don't do it casually. They are so casually offered. You could buy like shampoo and have it beyond buy now pay later. or a burrito or whatever. No.

Because you can doesn't mean you should. But Emma's thinking about this strategically. Emma has made some very large purchases recently. I've experienced the four-digit vet bill before myself. And so they are thinking about how they can spread the burden of these expensive payments over time so they don't have to necessarily drain their savings. And that's a really thoughtful way to go about using Buy Now Pay Later.

Well, I've been in debt before and I can tell you. you right now, I'm scared of debt. It's like a big ugly monster that comes and just eats up your paycheck every couple of weeks. I personally think being able to split purchases into monthly payments can make it easier to justify spending money that you quite frankly don't have, especially when you're looking at the installment amounts versus the overall cost of whatever you're buying. So Sarah, how do you view this approach of splitting up payments? Are you team debt trap or team strategic payment strategy? I urge anybody considering these plans to think about how much is this going to cost you above and beyond the price of the original purchase. So what sorts of fees or interest are you going to incur?

So when these plans give you the final cost, hey, if you pay this out over six months or six payments or whatever, here's what you're going to pay and they give you this big number. Okay, how much bigger is that number compared to what you were going to buy in the first place? If you were going to make $150 purchase, but then it's going to cost an extra $12 in fees, okay, that purchase just cost you $12 more to go through Buy Now pay later. That's just something to think about because if you do this a few times a year, over time, it begins to add up. And you might not be doing this for a $150 purchase. You might be doing this for a $3,000 purchase, in which case, a fee that's a fixed percentage of that $3,000 is going to be that much higher. And so you just want to be mindful of the overall cost of adding these plans into your life

because you are paying more for the ability to pay more slowly. And if you're okay with that and you see the number and you can live with it, that's great. But if you're not thinking about that number when you enter into these plans, you're simply thinking about, oh, well, I only need to pay 25% of this now. So I'm just going to do it. You really want to think about how much more this can cost you over time. It seems like the answer here is a big old, it depends, and it depends on the numbers. You have to do the math and think about what you feel comfortable paying because some people just don't want to pay any interest or fees in which case maybe none of these options are great.

We could talk about zero APR credit cards, but that's a whole another episode. We do have a list of zero interest credit cards and we'll have a link to that in the show notes. So check that out if you want to learn more. I want to focus a little more on the credit card payment plans and some pros and cons. So starting with some of the pros, Sarah, what do you think, Stan? out here? The big pro here is convenience because you already have this credit card. There's no need to apply for anything else again to get access to these installment plans. It's not like applying for a personal loan separately. There's no hard credit inquiry. You opt into seeing what potential

offers could be on the app you already use to manage your credit card. You see what they are. You either like them or you don't and you move on with your day. And so it's very seamless, which is great. It's also part of the danger because, you know, whenever you may, spending easier and you remove friction, it makes it easier to spend more. And so friction can be a good thing, but it also can be a bad thing. Friction can be a great thing because sometimes when I see it pop up when I'm buying groceries or whatever else, it's like, well, do I really need to split this in four? Just pay the whole thing right now. And I think it can be a psychological thing as well because like Emma, sometimes you don't want to see that large chunk of money just leave your account all at

at once. Speaking of some pros, I heard from the grapevine that some providers, allow you to continue earning rewards on your purchases while you use the plan. And know people, I'm not saying use the plan and go crazy to get rewards. That sounds convenient like you said, Sarah, but it also makes me think about how carrying a balance and paying interest on it can wipe out the value of those rewards. What are your thoughts? Huge benefit to a credit card by now, pay later plan, is that you would earn rewards on the purchase. The same rate as you would if you put the purchase on your overall credit card balance and then paid it off at the end of the month. So if you enter into an installment plan because you bought a refrigerator and they cost like two grand, and then you pay it off

over time, you're still earning points on that $2,000 purchase, which is great, asterisk. Obviously, if you get into credit card debt, interest rates being as high as they are, the amount of money you're spending on interest can wipe out the value of any rewards you earn on your card, sometimes in as little is just a few months, depending on your balance, your interest rate. So if you are potentially taking on debt, if you are not sure you're able to make all the payments on your installment plan on time, if you're carrying a balance otherwise on your credit card, this is not the time to chase rewards. Let's talk about some of the cons of using one of these plans besides potentially paying fees or, you know, getting into a debt trap here. What stands out to you? Yeah, the big one is

if you miss any payments, because then you might be subject to extra fees. Your account could even eventually go into default. And that's going to affect your credit score. So if you want to enter into these plans, do so strategically, knowing that you have the money to make every payment on time until you pay off the purchase in full. Sarah, I'm sure every provider is different, but can you give some eligibility requirements to use credit card plans? I was doing some poke-nosing, and I have the Chase-Saphyr Reserve card, and I see that they have a My Chase plan, a.k.a. Buy now, pay later plan. But only purchases made less than 90 days ago and that haven't been paid for on my regular card bill would be eligible. It really does depend on the provider. So American Express, for example, limits you to purchases that appear on your most recent billing statement or purchases that recently posted to your account. And City also has the same limit as American Express. And like I said earlier, an eligible purchase has to be a certain minimum amount like $75 or $100 or more. Okay, I want to talk about credit here, too. Emma asked whether these plans impact their credit. So how would one of these plans potentially affect maybe help or hurt Emma's credit?

I mentioned earlier if you miss a payment, it can hurt your credit. Can buy now, pay later help you build credit? Not yet. Not really. Great. Just downsides here. I don't know. I have multiple footnotes to this conversation. It's certainly something that is being paid more attention to. to buy like, you know, credit reporting agencies and companies that have scoring algorithms that take information and create your credit score. It has become so popular with consumers that it wouldn't surprise me more and more over the years to see this become more of a thing that could potentially help you build credit if you're responsible with it. But right now, it's not going to affect your credit score unless you miss a payment. So it can hurt you, but it's not going to help you. I really want to underline that because that is a little bananas to me. You're not getting

credit for on-time payments, which is a huge factor in your credit. credit score and your credit history, but you will be dinged if you don't make the payment on time. There's certainly an awakening to the fact that people can be responsible users of credit without being traditional users of credit. And so other payments like rent utilities, things like that, are beginning to be factored into and paid, you know, they're being paid attention to as a way to prove that somebody is credit worthy, which I think is awesome and way more inclusive. Not everybody can get a credit card. Not everybody wants to have a credit card. Not everybody Everybody has student loans.

So showing the other ways that a person can be a responsible borrower by proving that they are capable of making on-time payments for a variety of different kinds of monthly expenses on time is awesome. Well, the social justice, girly in me is happy that you guys pointed that out. I love the inclusivity. Cliff note that you left there. But I am going to play a little devil's advocate here, Sarah. I heard last fall, and we did mention it on the show, that some lenders were going to start reporting by now. later information to credit bureaus. Is that not a thing anymore?

And if it is, doesn't that mean that positive payment history could positively impact one score? It's definitely still a thing, but it's not as simple as starting on this date, buy now, pay later is going to be reflected in your credit score the end. FICO has two scoring models. They have many, but they have two newer ones. One is called FICO score 10 BNPL for Buy Now Pay Later. Another one is called FICO score 10T BNPL. These are designed to incorporate Buy Now Pay Later plans that are reported to credit bureaus and will appear on credit reports.

That's the good news. The not so awesome news is that lenders choose which scoring models they use when evaluating applications for loans and credit cards. And if they don't use FICO 10 or 10T, which many don't for the time being, by now pay later just simply isn't factored in. And as a consumer, you cannot choose which scoring model a lender uses. But different scoring models are designed for different types of borrowing. The scoring model used for mortgage applications is different from the one used for credit card applications, for example. And it is administratively complicated and expensive for a lender to change the scoring model they use. So even though new scoring models come to the market, it doesn't necessarily mean they're going to be widely adopted anytime soon.

How long will it be until a credit card lender uses them exclusively? I don't know. We talk a lot on smart money about paying off credit cards in full every month, but we all know that's not realistic for a lot of people. So let's talk about some other ways to pay off large balances over time and lower fees. I did mention zero APR credit cards earlier. And, you know, of course, official, quote unquote, buy now pay later programs like Klarna that we also mentioned before. How do you think these all factor into the decisions that Emma could be making? There are lots of different options out there for planned purchases, things that are not unexpected emergency expenses.

you have more options because you're not acting out of desperation. If you know you want to replace your dishwasher in the next month, you have time to shop around, see what it's a probable price is, and then see what your borrowing options might be if you need to borrow money to make this purchase. But if your refrigerator dies and you have to buy a new one immediately or your dog is sick or your car needs new tires because you ran over a nail or something, then obviously you're making this decision with a lot higher pressure, and so you might not necessarily make the most optimal choice

because you just don't have that many options. And so that's just something to think about. So if you have the luxury of a little bit of time, you can look into Buy Now Pay Later, see what the fees are or the interest. You can look into credit cards that offer no interest promotions. Typically, that's 12 months or longer, to pay down a balance at 0% APR.

That can save you a lot of money. You just want to be aware of the fact that once that no interest promotion on those credit cards ends, the APR returns to its standard level. So if you haven't paid your balance off in full, you still have some debt left on the card, you're going to begin owing interest on that. I think the situation you mentioned

where if you run over a nail with your car and you need a new tire immediately, you have some sort of emergency expense that you don't want to just charge on your card. I think that is really where the credit card payment plans shine as a differentiator because you can use them retroactively. And that is different than something like taking out a zero APR credit card

or using Klarna, I wish you might not have an option to use when you're at checkout getting your new tire. So I think that is kind of a cool feature to this and makes it a little bit more viable than other options in some ways. And again, with the third party providers, since many of them partner with retailers, you might not be offered that as an option at checkout. If you're dealing with like a small business, maybe a small business, like a smaller mechanic, an independent veterinarian's office, things like that, they might offer some things, but not others. I know a lot of veterinarians offer care credit, for example, which is often used for financing, medical expenses specifically. But I mean, the mechanic that I go to is like a small independent business and they charge 3% fees on credit card purchases, for example. So I might be in a

situation where I'm like, well, I don't think I want to use credit because I want to pay a 3% fee. And then that eliminates the option of financing that purchase later through a credit card by now pay later plans. So that's another thing to factor into. Are you taking your car to a national chain or are you taking your car to an independent mechanic? Speaking of mechanics, guys, I have an on the spot quiz for you all. I went to get my car service, boo. And I thought I just needed an oil change. And they're like, well, actually, you have X amount of miles.

So you need a transmission flush. And you also need to change your brake fluid. Can we guess how much that's going to cost me? $2,500. Oh, no, that's terrible. $533. Still money I don't want to pay. A, could pull in my emergency fund.

No, I do. not have a sinking fund for my car, Sean. B, could use a credit card payment plan and there is no C because there ain't no Karna. So what would you guys do? I would pay it out of my savings. I tried to use my credit card to get points if there isn't a 3% fee like Sarah mentioned before. And then, yeah, pay out of savings because I do have my car fund in my savings bucket strategy. So I'm covered there. Yes, you may convince me to get a sinking fund for my car. But actually, I really like C-Shawn. I really like charging to get my rewards

and then just paying it out of my savings. Well, Sarah, thank you for coming on to answer this question and also answering my pop quiz question. I know I put you on the spot there. No, thanks for having me. And that's all we've got. Remember that we're here to answer your money questions. So send them our way.

You can hit us up on the nerd hotline by leaving us a voicemail or texting us at 901-730-6373. It's 901-730 nerd. You can also email us at podcast at nerdwollet.com. And before we head out, I want to remind you all that we can look at your budget during one of our budget rehab episodes. If you need help managing your money or planning for a big expense, we can help you do that live. So just send us an email or fill out the budget rehab form, which we will include in the show description. Until then, join us next time to hear about transitioning to joint accounts and also shopping for banking.

Follow smart money on your favorite podcast app that includes Spotify, Apple Podcast, and IHeartRadio to automatic. download new episodes. And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general, educational, and entertainment purposes may not apply to your specific circumstances. This episode was produced by Tess Figland, Hillary Georgie, help with editing. Eve Krogman edits our audio and our video, and a big thank you to Nerdwals editors for their help. And with that said, until next time, turn to the nerds.