Guys, we’ve all been there: You’re scrolling through social media when you get hit with an ad for some jeans that you just have to have. You tap the link, and your heart skips a beat—$120 for a pair of jeans? They’re marketed as “the last pair of jeans you’ll ever buy.” Dang. Okay, solid copywriting. Here’s the problem though. You only have $30 left in your clothing budget, so you know you have to say ta-ta for now to those blue beauties.

But wait—what’s that? Right underneath that Buy Now button, it says something like “Pay in 4 interest-free payments of $30 with Klarna.” And you’re thinking, Heck yes! I’ve got $30 in my budget, and I’ll just roll those other three payments into next month’s budget, and the one after that, and the one after that.

Hold up. I’m going to stop you right there. Just because those split-up payments are interest-free doesn’t mean they’re a smart move. Step away from that Buy Now button real quick and hear me out on this: Buying now and paying later is a good way to be broke now and later.

Klarna is not your friend, and it’s definitely not going to help you get rich. So, allow me to be your actual friend and explain how these kinds of services work hard to take as much of your paycheck as possible.

What Is Klarna?

Klarna is a European bank. But they’re mostly known for their app that lets you buy something now and pay for it over time.

It’s just one of several installment payment plans (like Afterpay and Affirm) you’ve probably seen while shopping online, tempting you to buy things you can’t afford right now by giving you extra time to pay for it.

Here’s a quick history lesson so we know who we’re dealing with: Klarna started in 2005 in Stockholm, Sweden, but its parent company—The Klarna Group—didn’t form until 2014.1

Klarna claims to offer “shopping freedom” to its users with “flexible payments, full transparency, and free rewards.” I don’t know about you guys, but getting roped into monthly payments does not sound like freedom to me. You know what that sounds like? A credit card. And you know how I feel about those! Stay far, far away—just like your mom told you to stay away from strangers on the playground.

How Does Klarna Work?

Klarna offers a few different options for users. If you download their app, you can shop at their partner stores—online or even in person—and check out using the Klarna app to choose from one of their payment options. Here’s a breakdown of what they offer for buy now, pay later:

  • Option 1: Pay in 4. Split the cost of your purchase into four interest-free payments with 25% down and the rest paid every two weeks.
  • Option 2: Pay in 30 Days. Get your stuff right away and have 30 days to pay up.
  • Option 3: 6­–24 Month Financing. Klarna partnered with WebBank for this “flexible financing” option that allows you to split up your bill in monthly payments for six months or up to two years.

Honestly, I don’t like any of those options. But option three is by far the most dangerous, so we’re going to talk about that one first. Option three is Klarna’s only payment option that comes with interest—and the APR (annual percentage rate) can be as high as 29.99%!2 Dang, that’s just .01% away from being 30%, you guys! (I’m really good at math.)

If you choose to take 24 months to pay for a $500 coat, you’d only have to pay about $28 a month, but you could end up paying about $671 for that coat after two years. That’s an extra $171 you could’ve had in your pocket!

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But Klarna’s Pay in 4 option is definitely the most popular—that’s the one you see all the store websites using. And while that option doesn’t collect any interest, it can collect late fees—I know y’all are smart enough to see this one coming.

If your card declines on your second, third or fourth Klarna payment, they’ll tack on a fee of up to $7 for each missed payment.3 I know, I know—$7 doesn’t seem like the end of the world. But think about it . . . If you’re late on three of those four payments for that $100 shirt, it’s now a $121 shirt. At that point, you’ve just about added a fifth payment when you could’ve just budgeted, saved up $100, and paid for the shirt all at once!

What Stores Accept Klarna?

Klarna partners with over 250,000 different shops all over the world, including popular U.S. stores like Macy’s, H&M, Nike and Sephora. That means you can use their payment options to get everything from fashion and electronics to beauty and home goods.

Here’s the scary thing: You don’t even need to download the Klarna app or go to their website to use their services. If you’re online shopping at one of these stores and then head to your shopping cart, Klarna’s Pay in 4 option is right there waiting for you. No membership necessary. It’s totally frictionless—on purpose.

Is Klarna Safe?

It depends what you mean by safe. Is it a legit company? Yes. Is it safe for your wallet? Eh, not so much.

When you’re shopping with a buy now, pay later company, chances are, you’re not worried about how you’re going to pay the full amount for something. At least not yet. That’s why you decided to use Klarna in the first place. But buying now and paying later for things is just delaying the inevitable: having to worry about where that money is going to come from later.

Also, if you’re wondering how Klarna affects your credit score, it doesn’t. But while Klarna may not report your info to credit bureaus, unpaid debts are eventually sent to collections.4 And having a debt collector knocking at your door may be scarier than your FICO score going up or down by a point.

But I’m not a fan of the ole credit score in general. It’s literally just a number system the credit industry made up to keep you spending. You should be more worried about how much money you have in the bank. (And you don’t need a credit score when you pay for everything in full and up front.)

Is Klarna Actually a Better Way to Shop?

In case I haven’t made my stance crystal clear here, let me spell it out for you: N-O. No is a full sentence, and it’s one I want you to use liberally while shopping.

Do you know why so many stores partner with installment payment plan companies like Klarna? Because they make a crap ton more money by partnering with them! Think about it this way: These services trick you into spending more money by lowering your total amount by 75%, which means you’ve got way more room in your shopping cart now! But guess what? Joke’s on you, because you’re going to spend way more, and those payments are going to create leaks in your budget for months to come. These stats don’t lie: Klarna brags to businesses that offering their app will increase the average store order by 45%.5 That means that the average shopper is spending 45% more—for things they can’t afford—all because they don’t have to pay for it all at once. That’s messed up!

What if, instead of spending $25 every two weeks for a $100 shirt, you saved $25 every two weeks. By the end of the year, you’d have over $600. Better yet, what if you followed Macklemore’s advice and decided to hit up the thrift shop instead of paying $100 for a shirt in the first place. I’m just saying—he made it work with only $20 in his pocket! If you brought your clothing budget down to $20 a month and pocketed the other $80, you’d have $960 by the end of the year! Long story short: Don’t sacrifice your long-term dreams for your short-term desires. And hear me say this: I want you to own nice stuff. I just don’t want nice stuff to own you. But that’s exactly what happens if you don’t have a plan, save up, and pay cash up front.

No matter what your financial situation is, humans are more tempted to buy things when they see the lower number. As smart as we think we are, we’re not immune to stupid. The slick marketing and psychological mind games behind these services are causing you to be financially out of control. That’s right. You’re going to overspend. You’re going to buy things you don’t need. And you’re going to pay for the past instead of building for the future.

If you avoid Klarna and other buy now, pay later services and build these healthy money habits now, your future self will love you for it. I love picturing future George giving me a high five for abandoning my cart.

Sure. It’ll take some self-discipline, but I promise it’ll be worth it. So, budget for the things you want, unsubscribe from marketing emails, scroll right past all those ads, and focus on your future goals.

And if you think budgeting is lame or restrictive, you’re lame. Okay, weak comeback. But really, after budgeting for years now, I’ve found it’s actually the best way to stay in control of your money and start stacking cash. Believe me when I tell you that Klarna doesn’t give you freedom, but a zero-based budget does.

Not sure how to get started with your budget? Let me set you up on a blind date with our free budgeting app, EveryDollar. Yes, you heard me right—this app is free. And it’s the app I personally use to stay in charge of my money and tell every dollar where to go. Download EveryDollar today and show your money who’s boss. (Just to be clear, you’re the boss here. Now get after that boss budgeting life!)

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