Layaway: An Emerging Shopping Option This Holiday Season

Major retailers, including Wal-Mart, Kmart, Best Buy, Toys "R" Us and Sears, are dangling a huge carrot in front of shoppers' eyes this holiday season: layaway.

In fact, today's consumers are likely to see more in-store billboards and prime-time television commercials promoting the benefits of this alternative payment option than ever before. Even the spokesperson for the National Retail Federation is blogging about layaway.

So what's the buzz about? It's simple. Layaway is making a comeback by offering a decade's-old method for acquiring merchandise by spreading out payments over time.

Layaway works for many types of shoppers, including those in the midst of tough economic times, as well as those who simply don't want to incur new credit card debt. (Think of those budget-busting bills you often receive in January after a season of shopping!)

For the convenience that layaway affords, however, consumers are charged an up-front service fee that is either a flat rate or a percentage of the merchandise's cost. But these fees can often be smaller than the credit card interest rates you might face for the same shopping privilege, making them a budget-conscious alternative worth considering.

The bottom line is this: If you need an economical option this holiday season, layaway can help you stay on budget, provided you layaway "smart."

Layaway 101

If you're not familiar with the term, "layaway" is now a fairly common shopping method used to spread out payments when purchasing, primarily, big-ticket items. It was a popular way for budget-conscious people to shop until a few decades ago, when consumers increased their use of credit cards and layaway plans practically dried up.

But for a growing number of consumers, shopping with a credit card has resulted in massive amounts of debt as they fell prey to a "buy now, figure out how to pay later" mentality that has ruined many peoples' credit.

As a result, some major retailers like those listed above recently reinstated layaway policies as a way to boost their bottom lines and encourage consumer spending in a downed economy.

While this all sounds great, there are some conditions consumers need to be aware of as they consider shopping on layaway:

• Online vs. Storefront Shopping: Don't expect to be able to take advantage of layaway plans at all storefront retail locations or all at online sites. For example, Toys R Us limits layaway shopping to in-store purchases only while shoppers can go online and make layaway purchases on Kmart's website.

• Available Merchandise: Not all items are available on layaway. For example, while Kmart lets you shop online and buy practically anything on layaway; Best Buy requires item(s) to total $250 or more to qualify for layaway. Wal-Mart has lower limits, allowing layaway purchases of toys and electronics valued at $50 or more, while Toys "R" Us recently expanded its layaway program to include most toys found in its stores, including Barbie dolls and Lego sets.

• Fee Structures: Store policies vary, so carefully read all financing terms before signing a layaway contract. Then, once you agree to purchase on layaway, expect to have to make a down payment, and then agree to make scheduled payments every two weeks, collecting your merchandise after making your final payment. Down payments typically fall in the $5-$10 range, plus either $15 or 10 percent of the merchandise, whichever is greater. Additionally contracts last an average of eight to 12 weeks and can be canceled if you miss a payment, resulting in an additional fee.

Is Layaway for You?

Layaway can be good option for consumers who are disciplined about making regular payments. Another benefit? You don't have to worry about hiding all those holiday purchases - your retailer does it for you!

Ultimately, however you shop this holiday season, stick to your budget and have a strategy for staying within your means so you don't add to your debt. Also, take advantage of some of these stress-relievers, and you'll arrive ready and refreshed to take on the New Year.

For more advice about shopping on layaway, read this tip sheet from The Federal Trade Commission (FTC), the nation's consumer protection agency.

Jenny Realo

Jenny Realo is the Chief Product Officer for CareOne Debt Relief Services. In our A Straight Talk on Debt blog, Jenny provides her insights and updates based on her 20+ years of experience in the financial service industry. Jenny is dedicated consumer advocate and places much of her focus on consumer protections in relation to creditor and industry regulatory changes.

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