Will You Fall for the Layaway Trap This Year?

Christmas border with layaway sign
Catherine Lane/Getty Images

It seems as if the holiday shopping season keeps creeping earlier into the year and we saw that on display late last month when Walmart (WMT) kicked off its Christmas layaway program. Retailers have always tried to get shoppers on a tight budget to start prepaying for their holiday purchases early through the layaway process, but Christmas in August seems like a bit of a stretch.

Walmart's annual layaway program kicked off on Sept. 16 in 2012, Sept. 13 in 2013, and Sept. 12 in 2014. This year it rolled out on Aug. 28. Clearly, the world's largest retailer wants you to commit your holiday spending to Walmart as early as possible this summer, but that alone should make you skeptical.

Layaway is a noble concept in theory, giving shoppers the ability to prepay for merchandise through installment payments until it is paid in full by mid-December, but let's not kid ourselves: Layaway is often more about the retailer than the shopper.

The Dark Side of Layaway

Walmart used to charge shoppers $5 to open a layaway program. That initiation charge was done away with in 2013, but the retailer decided to reintroduce a $10 cancellation fee that it had eliminated a year earlier.

%VIRTUAL-WSSCourseInline-884%That cancellation fee is still in place for anyone who doesn't fully pay and pick up an order by Dec. 14. Payments made up to that point will be refunded after subtracting the $10 cancellation fee. That would be adding insult to injury, but it's not the only reason that going the layaway route could be a losing proposition.

Deciding what you want to buy as early as August is problematic. We still don't know what the hot holiday toys will be this season. Walmart kicked off this year's layaway program a whole week before the new "Star Wars: A Force Awakens" merchandise was unveiled and nearly two weeks before Apple's (AAPL) big product release event. Who knows how many cool wearable cameras, video games and licensed products will hit stores closer to the actual holiday shopping season?

One shouldn't need layaway. Tucking away that money under the mattress and having greater freedom to shop around -- in terms of both products and pricing -- has to be the smarter way to go. Sure, Walmart and most layaway-offering chains will match competitors' prices, but isn't it better to actively seek out those deals instead of handing your money to a retailer for months? What happens if you lose your job, your roof leaks or a medical emergency comes up, forcing you to reconsider how much you can spend on gifts this year?

There's a stigma to layaway, but it would be out of line to call it a poor tax. It's not as predatory as advance payday loans that are tagged with ridiculous borrowing costs. Then again, the money is going the other way in layaway. You pay high interest rates at advance-payday and check-cashing establishments to get your money early, but Walmart isn't paying the layaway shopper interest on the money that they are holding for months before having to deliver the purchased merchandise.

The bottom of your mattress isn't going to be paying you interest on your money either, but at least you'll be sleeping better at night knowing that you have greater flexibility in how you will ultimately allocate your holiday shopping.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns and recommends Apple. Try any of our Foolish newsletter services free for 30 days. Check out The Motley Fool's one great stock to buy for 2015 and beyond.