Layaway: A Black Friday Alternative

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Got a big-ticket purchase to make this holiday season, but not enough money in your checking account? You might consider a layaway plan.

Yes, layaway. It seems like a quaint concept now that credit cards have become the preferred option for the buy now, pay later crowd. Wal-Mart even did away with the service completely in 2006, citing reduced demand. Yet shoppers struggling to keep their credit card debt under control may find paying in installments to be an attractive option.

“The credit card allows shoppers to buy on impulse without the immediate worry of how to pay for their purchases," said Dorothy Guzek, a financial counselor with GreenPath Debt Solutions, in a press release earlier this week. "Unfortunately, when the credit card bill comes due, consumers are left with a surprise balance they can't afford to pay, because they forgot to keep track of each purchase.”

For some Americans, layaway isn’t just a way to restrain impulse spending – it’s also a means of digging out of debt. As we reported earlier this week, 5% of consumers are still trying to pay off the credit card debt they racked up last holiday season, and these shoppers will be reluctant to take on any more debt. While some respond by using cash or debit cards instead of credit, the simple fact is that not everyone has enough money in the bank to make their holiday purchases up front.

That’s where layaway comes in: It’s an interest-free installment plan that usually requires a small down payment. If you initiate a plan now you can pick up your goods in time for the holidays. That’s especially useful if you spot a limited time Black Friday (or Pre-Black Friday) sale and want to take advantage before you get your next paycheck.

There are other advantages, as well. Since you must usually pay a set amount every month, you’re forced to work it into your budget instead of just building an ever-expanding pile of debt. And if you use layaway for your holiday shopping, you don’t have to worry about nosy kids finding the presents stashed in the attic since the gifts will be safe at the store until you pick them up.

Even with Wal-Mart out of the game, there are a number of retailers that still offer the plans. Here are a few:

K-Mart
The retailer declared a “National Layaway Week” in early October to promote its online layaway plans, which allow customers to pick out items online, buy them on layaway, and use a calculator to determine what the payments will be. For an eight-week contract, the down payment is either 10% of the item’s value or $15 (whichever is greater), and there’s a $5 initiation fee; 12-week contracts are available in stores for items more than $300, and they require an initiation fee of $10. There is a $10 cancellation fee for eight-week contracts, or $20 for cancelling a 12-week contract. Of course, if you need the item under the tree by Christmas you can finish paying it off before eight weeks have elapsed.

Sears (Stock Quote: SHLD)
Layaway contracts are also eight weeks, though contracts for fine jewelry are longer. A $5 initiation fee and $10 cancellation fee apply, as does a $15 or 20% down payment (whichever is greater).

Toys ‘R’ Us
The massive toy retailer offers more flexible terms. The only stipulation is that half of the item must be paid off within 45 days and paid off in full within 90 days. There is a $10 service fee and a $5 cancellation fee.

Burlington Coat Factory
The store offers 60-day layaway plans with a 20% down payment, a $5 service fee and a $10 cancellation fee.

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