The holidays are swiftly approaching, and many early bird shoppers are already making their lists. With a multitude of financing options available, it can be confusing to determine which is best for you.
Although the best way to finance your shopping is by planning ahead and utilizing holiday savings accounts or good old-fashioned cash, many people find themselves choosing between racking up credit card debt or using retailers’ layaway plans.
At first glance, layaway seems to be a better option than going into debt, and it can be. But you might be surprised to learn you can spend more on layaway financing than you would by using your credit card.
Here are three tips on how best to use layaways for holiday shopping:
1. Find out the fees beforehand
Since the reintroduction of layaway plans by major retailers in the last few years, there seems to be more fees and restrictions. Wal-Mart, who reintroduced their layaway plan in 2011, originally charged a $5 service fee and a $10 cancellation fee, and only offered it on electronics and toys. Competition among retailers has led them to return to free financing and wider categories — though they kept the cancellation fee.
Considering what layaway fees you’ll be paying is important when choosing which retailer you’ll be shopping with, as well as whether you should use their layaway plan.
In many cases, if there is any layaway fee, you’ll find that using your credit card is actually more financially responsible. Even a $5 fee for two months of financing on one high-ticket item translates to a credit card interest rate of 40% or more — terms only those with horrible credit would settle for. The advantage of using layaway versus a credit card is that at least you can’t rack up thousands of dollars in debt. If you decide you can’t afford the item, you’ll only be out the cancellation fees.
2. Determine if you’ll be able to pay off the item in time
Placing items in layaway shouldn’t be done with wishful thinking. Sure, you’d love to be able to afford everything for your kids; but if you don’t use layaway realistically, you could find yourself wasting money on cancellation fees — money you could’ve used toward another purchase.
Since most retailers have limited their layaway terms to 2-4 months before Christmas, crunch the numbers to determine how many payments you’ll need to make, and for what amounts. If the payments aren’t within your budget, don’t do it. Hoping you’ll somehow come up with the money in time isn’t a good holiday shopping strategy.
When paying off a layaway, pay close attention to the repayment terms on your receipt. It’s also a good idea to write reminders of payment days in your planner so you don’t default.
3. Use layaway as the exception, not the rule
Putting everything on your shopping list in layaway is setting yourself up for failure and wasted money. Instead, plan ahead to pay in cash for most of your items, and reserve layaway for a few special high-ticket items that are difficult to save for.
This way, you’re less likely to extend yourself too far financially, but you’re still taking advantage of payment plans to make certain purchases attainable.
Having a strategy and keeping an eye out for hidden or excessive fees can make layaway a helpful holiday-shopping tool — instead of a waste of money.
Are you going to be using layaway this holiday season?