Layaway has been making a comeback since the recession. In fact,
it's been in the headlines recently because several stores that
offer this installment-payment program are reducing or dropping
layaway service fees.
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For example, Kmart and Toys R Us recently announced that they're
dropping their layaway fees during the holiday shopping season. And
Walmart is reducing its fee from $15 to $5 from September 16 to
Layaway allows customers to select items they want and pay for
them over a period of time. Once final payments are made, items may
be picked up. The difference between using a layaway program and a
credit card (which can let you stretch payments out over a period
of time) is that interest doesn't accrue on layaway items. However,
you must pay a nominal service fee and a deposit at the time of
Considering that some major retailers are eliminating (or
lowering) their service fees, should you consider layaway to
purchase holiday gifts without racking up debt? Consumer expert
Andrea Woroch says there are five reasons this payment method might
not be right for you.
1. Some stores still charge fees.
Although Kmart and Toys R Us are dropping their fees for a limited
time, Best Buy will still be charging 5% of a total layaway
purchase value. Burlington Coat Factory, T.J. Maxx and Marshalls
charge a $5 nonrefundable fee.
2. Canceling will cost you.
Retailers charge a cancellation fee, ranging from $5 to $15, if you
decide not to go through with your layaway purchase. Add this to
the nonrefundable $5 service or initiation fee, and you've lost up
3. You might be paying a higher price.
If you put items on layaway now so that they'll be paid off by the
holidays, you'll likely be buying them at full price. There's a
good chance that the price on those items will be marked down on
Black Friday or in December. So ask the retailer whether you can
get the lower price on a product if it goes on sale after you've
placed it on layaway. If not, you could be better off saving up
over the next two months to pay for the item with cash when it's
discounted. Look for my Kip Tip in the coming weeks on how to save
$1,000 by the holidays.
4. You're committing to pay for something with money you
might not have.
Just because you're stretching out payments over several weeks
doesn't mean you won't end up in a financial hole, Woroch says. If
putting an item on layaway is the only way you can afford it, you
might not have the cash to pay for it if an emergency arises and
puts a strain on your finances.
5. Using your credit card might be more rewarding.
Using plastic for your purchase might be a better option if you
have a rewards credit card and are disciplined about paying off
your balance each month. You could earn cash back, which could help
pay for holiday gifts, or earn travel points to offset the cost of
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