Is Layaway a Good Idea? Here Are the Pros and Cons

Personal finance expert Carmen Wong Ulrich tells us why we should be weary of layaway for the holidays

Here’s a holiday creation I never thought I’d see: A holiday ham layaway offer. Odds are that if you need to pay for your holiday ham in installments, you probably have other more pressing needs for your money than some pork. Layaway has come back with a vengeance this year and much of it has to do with two things: tight budgets and tight credit. All the 'big' boys are doing it from Sears and Kmart to Wal-mart and Best Buy.

So, why not? If it worked for our Mamas, why shouldn’t it work in the 21st century?

Well, because:

- Layaway requires you to ‘buy’ something 12 to 8 weeks before you’re scheduled to pay it off, in effect, locking in a potentially much higher pre-holiday-sale price. Some retailers do price match but odds are in as little as four weeks you’ll see and get a better price.

- Layaway comes with fees such as a $5 service fee at purchase as well as cancellation fees closer to $20. So, let’s say you can’t pay off your items in the contracted time. Your items go back into inventory and you’re out $25.

- You have alternatives. Such as, (drum roll), saving! If you can have the discipline to make weekly or bi-weekly payments to the retailer, you have the discipline to save up the cash money on your own, paying no fees and possibly getting a much lower price.

And what about the nemesis of layaway: credit cards? Dare I say it? If your purchase is less than $200 and you can pay it off either in full or within 60 days, it makes much more financial sense, even with an interest rate of 18%, to swipe that card rather than layaway (culprit: layaway fees cost more than the interest).

However, for some folks without access to credit, but with discipline, layaway can make some sense. Just make sure that you set those items aside with full knowledge of the real costs, and rules, of your deal.

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