Layaway has made a comeback with many retailers like Wal-Mart, Target and K-Mart. The big question is; is it a good idea or should it be avoided? After 12 years in the credit industry, the answer is the same as 90% of all credit related questions; it depends!
The reality is that if you are a “good borrower”, layaway is a fantastic way to shop for the Holidays interest free. You can make payments months in advance so that when the big day comes, you can give your gifts without the aftershock of dealing with credit card payments and interest. Your New Years Day will be much less stress filled knowing that you don’t have a “Credit Card Hangover!”
Here is the downside. If you overextend yourself with Layaway items, the consequences can be worse than having credit card debt. When you layaway an item, you are agreeing to the terms of the store providing this option. In most cases, of you don’t make your payments on time and to completion, you lose all the payments you made to that point and the item goes back into stock. I think we can all agree that not having that special gift under the tree can be worse than the credit card hangover!
If I can offer suggestions to anyone thinking of using layaway, consider using the grocery store philosophy. You know the old adage never go shopping hungry? You end up buying everything you don’t need and it will be mostly junk food.
Well before you hit Target to put your Holiday list on layaway, pay all of your bills and see how much you have left over in your budget to apply towards your layaway items. Once you have established how much you can afford, try and subtract 10-20% of that to account for any unforeseen bills. You don’t want to run out of funds two payments shy of paying off that laptop!
As with any type of credit, use caution. Remember that stores make their offers very attractive and it is easy to be swayed by marketing. Trust your budget numbers as they don’t lie, and remember that no smile or gadget is worth losing money over!