Is layaway right for you?

Woman shops for a toaster at Sears
Haven't decided how you're going to pay for your gifts this holiday season? Given that credit has become so difficult -- and expensive -- what about layaway?

It was everywhere in the 1920s and 1930s, but after becoming virtually extinct in the 1980s (when everyone was using credit cards), layaway made a big comeback last year. And many stores -- from Sears and Kmart, which had 3 million layaway customers combined last year, to some high-end boutiques -- are looking to capitalize on its success.

The programs all work differently, but the premise is the same: you put want you want on hold, pay a setup fee, make a deposit (10-20% of the purchase price), and agree to make regular payments over a set period of time (generally 8-12 weeks). The store holds the item(s) as collateral, and when you've paid for it, in full, that item(s) is yours - with no additional financial obligations or interest.

Is this for you? Here's what you should consider:

Your credit card balance
Layaway is an appealing option for people who have credit issues because there's no credit check It may also make sense if you have high interest rate cards, you carry a balance month to month or have a lot of debt and are determined not to take on more. However, if you have good credit and pay off your balance every month, there's no advantage to these programs beyond the obvious: storage!

Setup fees
Setup fees typically range from $5-$10 per contract, so layaway doesn't make sense unless that fee is less than 10% of the value what you're buying. In other words, unless you're setting aside a big ticket item like a flat-screen television, bike or jewelry, think twice.

Your budget
Layaway may be empowering (as this is a planned purchase as opposed to an impulse buy), but before you sign on, just make sure the payment schedule fits with your budget, that you're clear on what happens if you miss a payment (at Sears, for example, your layaway item(s) will go back on the shelves if you are seven days late making a payment), and are aware of cancellation and restocking fees, which can be as high as $35!

Price adjustments
One of the big negatives: when you set up a layaway account, is that you may forfeit the ability to take advantage of any price drops or sales on the item(s) you've set aside. Or you may be entitled to just one price adjustment -- and often within a specific time frame (as is the case with Kmart) .

Item availability
On those hard-to-find electronics, limited editions or hot items that are expected to sell out, layaway is decent option, particularly this holiday season's tight inventory (Retailers are not doing a whole lot of restocking!). The message being: If you see something you want -- and love -- and if it's eligible for layaway (not all items are), lock it in!
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