Layaway – the anti-plastic

In this report: Overview; When not to use a debit card; Watch those late payments

The anti-plastic

With credit tight, layaway is back. And it just might save you money.

Last reviewed: October 2009

Remember layaway? Your mom might have used it back in the day to buy that prized dinette set or the family's first color TV. But layaway never went away and now, with budgets busting at the seams, it's back—and better than ever in some cases. A recent survey found that almost half of Americans are whipping out credit cards less often. So merchants are offering buyers another way to pay. Extended-payment plans are popping up in more stores and online, too; even some travel sites (LayAway-Travel.com) and concert festivals (Country Thunder, Bonnaroo, and Coachella) have those programs. With the holidays approaching, now's a good time to get reacquainted with layaway.

How does it work?

The basics remain the same: You pick a big-ticket item (or a bunch of smaller-ticket items), put a bit of money down, make payments for several weeks or up to a year until your purchase is paid off, and then take your stuff home.

Why choose layaway?

You can spread purchases over several paychecks. Plus there's no interest charged, so you won't still be paying for that plasma TV three years from now. Layaway can be especially helpful for holiday shopping. You can nab hot items before they get snapped up and avoid the crowds vying for the last laughing/crying/break-dancing Elmo. And what better place to hide gifts from prying eyes than the backroom of your favorite store?

Where can I use it?

Layaway plans at local merchants and stores like Kmart, Burlington Coat Factory, and Sears have been kicking around for years. And some are new and improved. Starting in October, Kmart and Sears (which are owned by the same company) are upgrading their plans in response to customer demand and will offer online layaway.

The Internet is a fast-growing arena for layaway plans. ELayaway has partnered with more than 700 online merchants (Apple, Hyatt Hotels, and Home Depot, to name a few) to offer layaway options. Lay-Away.com has a similar service, with an emphasis on electronics and appliances. You can even put your next vacation on layaway. Request a trip quote on LayAway-Travel.com and take up to a year to pay.

You can plan ahead for a big concert and take your time paying for the tickets. Tickets for festivals like Coachella go for as much as $269; with a payment plan, you might be able to take the family.

What are the drawbacks?

You might have to pay fees. Most layaway plans charge a cancellation fee. We reviewed nine plans and found that their fees range from just $5 or $10 (at Burlington and Baby Depot and at Kmart and Sears, respectively) to as much as $150 (at LayAway-Travel.com; fees there start at $50). Or they might be a percentage of the total purchase (at eLayaway.com, 10 percent or $25, whichever is less). If you cancel concert tickets, you might forfeit all the money you put down. Some layaway plans also charge service fees of $5 or a small percentage of the merchandise total.

Some stores honor at least one price adjustment if an item goes on sale. But the adjustment period is usually limited to a couple of weeks or less.

You will forfeit any funds you could have accumulated by saving the cash in an interest-bearing account until you had enough for your purchase. And if you pay with cash, of course, you don't pay any service fees.

Like gift cards, layaway payments could go poof if a store goes belly up.

How can I get the most out of layaway?

Set a realistic budget

There's no sense in making a down payment on something you can't afford to pay off, so think before you buy.

Sign up for automatic billing

Missed payments can send your merchandise back to the sales floor; e-mail reminders help, but you can sign up to have payments automatically taken from your checking account.