Layaway: Is it the Best Decision for you This Holiday?

by Sean Bryant on November 15, 2011

Over the past few years we have been talking a lot about the “Credit Crisis” that has plagued to United States.  It seems that this shortfall in credit has now brought back the ever so popular layaway plan for retail stores.

United States Senator Charles Schumer feels that layaway will actually cost consumers more than it would to charge the item on your credit card.  In a way this is probably true.  For those of you who know me or who have heard me talk you know that I am a fan of credit cards just as long as you use them properly.  Credit cards can be a great way to build up rewards points that can equal cash back or airline miles.  The one important thing to remember is that you need to be smart about your purchases.  You need to make sure you can pay your ful balance off at the end of the month.

Now what do you really get out of putting something on layaway?  You have the ability to purchase the item at a later date know that if it’s popular it will still be waiting for you in the stores back room.  Other than that you get a nice big layaway fee.  At least with a credit card you are earning a reward.

Now let’s take a scenario for example.  Let’s say that you are looking to purchase an Xbox 360 for your son but don’t have the money for it right now.  You decide that you want to put it on layaway and the store charges you a layaway fee of $5.00.  This is to cover their costs.  They will also ask you to put a percentage down of the total cost, let’s say 10%.  Now what if you decide that you are unable to afford the item a few months down the line.  You are out the layaway fee with nothing to show for it.  You will also want to look at the fine print on the layaway agreement because a lot of them have a limit of 90 days before the product is returned to the store shelves.

The stance on Credit vs layaway will end up going both directions as there are pros and cons to both.  The end solution is that you just need to be smart about your buying choices.  Don’t put something on layaway if you feel that you still won’t be able to afford it 3 months down the road.  The same goes for your credit card.  If you can’t pay it off at the end of the month than it might not be the best option for you at the moment.

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Sean Bryant

Sean Bryant created in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.

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