I am sure you've noticed the return of store layaways this year. The retail industry is clearly trying to find ways to make more of us spend like we used to before the economy took its recent nose dive, but is it really a good idea to spend the kind of money that you actually need layaway for? If you were planning to grab the same stuff with a credit card or can afford to pay for it in a few weeks and are scared that it will be sold out by then, it might be a good idea. For the most part however layaway just tricks people in spending more and paying fees that they would not have if they had just saved up on their own and paid for gifts outright.
Why is Layaway Everywhere Anyway?
It may not be a flattering picture of holiday shoppers, but out of every seven people there is one person who has used up 80 percent of their credit going into the season. You can imagine how much higher that percentage is right after the holidays.
Stores like Toys R Us, Wal-Mart, Kmart, Sears, TJ Maxx and Gamespot are all hoping that you will give up on paying off your cards and come in to pay your layaway. Ok, so they have not made that statement directly, but by curbing off promoting their private credit cards and promoting layaway instead they are acknowledging that buyers probably do not have the credit to get approved. What does a buyer with a shopping habit and no credit need to make their Christmas complete? A seven-week layaway for all the stuff they probably cannot afford to begin with, of course.
Why Not Layaway Christmas?
You will actually spend less on finance charges if you use a credit card instead of a layaway plan. Layaway plans stretch payments across 7 weeks and two credit card payments stretch across 8, giving you an extra week. An additional benefit to putting in on your card is that you do not have to waste your time and gas money going to the store once a week for nearly two months just to make payments. If you have an interest rate of 10 percent or less, you will save much more time and money by playing it smart and walking away from the layaway counter. Think of your low interest credit card as a two-payment layaway system.
If you can afford to buy something within a few months, there are many reasons to just save and buy it outright. With layaway you are prone to impulse purchases, layaway fees and the cost of gas for seven trips to the store. You also miss out on sale prices like those on Black Friday or other huge blowouts. A lot of retailers have a minimum price requirement for each item you put on layaway, forcing you to pick out toys or gadgets that are ‘just’ another five dollars. Some stores also require layaway items to be priced at full retail price, which makes it impossible to save money on any markdowns.
They may also require a percentage of the layaway total to be paid as a convenience fee, which can be outrageous for electronics. There is also the looming danger of the store closing down or filing bankruptcy and keeping everything that you have paid towards the layaway altogether. Some stores also keep all the money paid on your layaway if you cannot finish making payments. Others allow you to get it back in the form of a gift card, which may not be ideal if you were not able to make payments due to an emergency or other financial responsibility. Something else that kind of stinks is that not a one of those on-time payments helps your credit.
Is There Anything Good About Layaway?
There are some positive possibilities for layaway programs. Getting a hot item that is selling out reserved for a few weeks while you save up the money may be well worth a small fee. Your credit does not take a hit if something unexpected comes up, but you may be stuck with a gift card refund. Some stores may allow you to put something on layaway at a sale price, but make sure to find out beforehand. Black Friday sales are usually always excluded from promotional offers like coupons and layaway plans. It can work for you if you work within your budget and are smart about it.
Here is a pros and con recap:
- Impulse purchases
- Layaway fees
- Cost of gas to travel back and forth to make payments
- Often excludes sale prices
- Minimum item price
- Danger of losing payments if store goes bankrupt
- Danger of losing payments if you cannot complete them or getting stuck with a gift card
- Promotes irresponsible shopping
- Timely payments do not help your credit
- Reserving a sell-out item so you can save up for it
- No credit reporting if something comes up and you need to cancel your layaway
- Some retailers let you put a sale item on layaway
Jessica Bosari is a freelance writer and blogger for various publications and her own telecommute writing jobs blog. You can read more of Jessica's work here. If you have any comments or questions about SavingTools or about saving money, leave your comments in the form below or email firstname.lastname@example.org. Thanks!