Clark Howard: Use layaway option for debt-free holidays

Consumer expert Clark Howard’s column appears here each Thursday in conjunction with Deal Spotter, a weekly print section in The Atlanta Journal-Constitution.

ClarkHowardWalmart is reintroducing layaway to help shoppers play Santa Claus on a cash budget this holiday season.

The nation’s largest retailer is the latest to breathe new life into this very old way of shopping. Sears, Kmart and Toys “R” Us have all done layaway plans for the past few years and are doing them again this season.

Here’s how layaway worked in the past: You’d go into a store during the fall and put a deposit down on a sale item that you wanted to give someone at Christmas. (Traditionally, your deposit was noted on a piece of carbon paper in the days before the computer era.) Then you would pay additional money toward the outstanding balance in the weeks leading up to Christmas.

Usually by the second week of December, you’d be required to have finished paying off the balance in full. If you didn’t pay it off in full by that time, you didn’t get the item and — depending on the retailer’s policy — you could lose all the money you’d been paying through the fall.

Layaway slowly went away because people increasingly just decided to charge their purchases on credit, whether they had the money or not.

But I love the idea of layaway making a comeback because it forces you do to a cash Christmas.

Walmart’s layaway plan will only be available for electronics and toys. You’ll be required to pay off your balance by Dec. 16. If you can’t come up with all the money by that date, Walmart will give you everything you paid back, minus a $10 service fee. That seems fair to me.

Remember, cash is king. Layaway can help you avoid a debt hangover come January that has you wheezing under the burden of bills throughout 2012.

Only spending what you have — wow, what a concept!

-by Clark Howard, Save More, Spend Less, Avoid Rip-offs

Find more answers to your consumer questions, plus Clark’s new book “Living Large in Lean Times,” at ClarkHoward.com. Listen to his radio show live 1-4 p.m. Monday through Friday on WSB 750 AM and 95.5 FM.

19 comments Add your comment

Ridiculous

October 27th, 2011
7:26 am

That is the dumbest thing I’ve heard in a very long time.

Here’s a crazy idea: save up the money and pay with cash yourself. If “cash is king,” pay with cash.

Layaway fees

October 27th, 2011
7:29 am

A good deal??? Seriously?

If I charge the item, then I pay only for the item. If I use layaway, it costs EXTRA – something Clark doesn’t mention. Most layaways – WALMART INCLUDED – charge a service fee. In Walmart’s case, they charge a $5 Service fee for the layaway. Look at the website, they don’t hide the fee.

I can’t believe Clark is endorsing paying a $5 fee for the right to purchase something.

fairburn1

October 27th, 2011
7:48 am

If you Don’t have the Money, you shouldn’t Spend the money. Hey Clarke. I really need to holler at ya, I need some advice on a purchase of a home.

So use a credit card?

October 27th, 2011
7:53 am

So “Layaway fees” – you advocate charging the item and let me guess…pay it off the following month. Well history shows that a small percentage of people actually pay off their credit cards each month and while many have the good intention to pay it off – Murphy’s Law goes into effect and that money (minus the minimum payment) is needed for a REAL emergency. So why not use layaway and pay the $5 fee and when you make the last payment…it’s yours? Personally, I choose to save for those big items and pay cash at the register on the day of purchase but layaway is a better option than using a credit card.

Doesn't Make Cents

October 27th, 2011
7:55 am

@Layaway, I completely agree with you! I learned through experience (in the 90s) that layaway is not always better. I don’t know whether Clark was trying to get people to choose the lesser of two evils (interest payments on credit card vs layaway plan), but the larger lesson for people to learn/understand is to save up for what you plan to buy, then purchase it. If you can’t afford it, buy something less expensive – especially if it’s a gift. If times are that hard that you have to nickle and dime what you’ll buy for someone, then the recipient will be more than grateful that you got them anything because they understand your financial situation.

Plus, with an automatic $5 layaway service fee, does this mean that Wal-Mart will charge an additional $10 if you don’t pick up the item by a certain date? So you have the potential of losing $15 on the deal! Goodness, don’t let it be a $10 item to begin with. You’ll be right back in debt when it’s all said and done!

Joel Dockery

October 27th, 2011
7:59 am

Yes, if you charge the item, AND you are disciplined enough to pay it off before interest accrues, then by all means use a credit card. If you’re that disciplined then you probably have the cash to pay for it up front anyways. Layaway is handy for those who would like to lock in a current sale price but need some time to come up with the cash. After the fee they’d probably get a much better deal than if they a)carried a credit card balance for two months or more or b)waited until they saved up the money and the price went up.

TXFan

October 27th, 2011
8:11 am

@Layaway Fees:

Considering most people will pay MORE than $5 in finance charges for purchases if they use a credit card, I fail to see how layaway is not a good idea.

Rodney Dangerfield

October 27th, 2011
8:23 am

Layaway is a great idea. I would like to be the first to inform the credit card carrying Layaway Fees that not everyone a) has a credit card or b) wants to use a credit card.

mystery poster

October 27th, 2011
8:27 am

I have been using a Christmas Club at my credit union for years. They take a set amount from my paycheck and put it in a separate account. Then, come Christmas time, I have the money to shop. No layaway fees, no interest charges.

Bri

October 27th, 2011
8:30 am

Thanks @Joel Dockery & @TXFan.

How can you really complain about a ONE TIME fee of $5 when anyone purchasing with a credit card will more than likely pay more than double that in finance charges. And in these times, I think layaway is good for the people who will utilize it properly (not overbuying and actually completing the purchase).

If layaway isn’t for you, then don’t use it, but don’t criticize others that find it useful. There will be lots of smiling faces Christmas morning because of layaway.

Bella

October 27th, 2011
8:35 am

Don’t look for layaway to be around after this recession as retailers HATE layaway.

First, the reason for the fee(S) is because the retailers have to store the item for you and there are a large percentage of customers that forget their merchandise, which will mean another charge to the customer if they still want the items. It is a very labor intensive process that really costs the retailer alot of lost sales to better customers.

The type of customer that largely uses layaway has no business making purchases anyway. The next time you are at a store check out who is using layaway and you will see what I mean!

Joel Dockery

October 27th, 2011
9:04 am

How exactly does layaway “costs the retailer alot of lost sales to better customers”? And who is this “type of customer”? Are they people who don’t buy into the credit card hype? Are they people who have a budget and stick to it? And how are we to “check out” these people? Run a credit check or background check? Or just look at them, and judge them by their appearances?

dw

October 27th, 2011
9:38 am

What a stupid idea… either you can afford the item or not. If you lack the funds or credit to buy it, you should be working on getting that fixed first, not buying gifts for a sham holiday. My 2 cents.

@ Joel Dockery

October 27th, 2011
10:19 am

Did certain comments hit a little close to home?

Layaway fees

October 28th, 2011
8:26 am

If you’re so strapped for cash that your only options are paying extra fees (for layaway or credit card), then you need to save up a little at a time throughout the year to have it when you need it. This is why some people will never get financial freedom – they continue to pay extra fees instead of save.

Also, my original point was that Clark “conveniently” left out the part about the layaway fees. That could come as a surprise when someone gets to the store ready to layaway something.

@ Joel Dockery II

October 28th, 2011
11:00 pm

“These types of people” are people who CAN’T stick to a budget. If they could stick to a budget, they would save up the money independently and purchase with cash. Here are the only the only reasons layaway makes sense:

1) You cannot stick to a budget unless threatened by letting past layaway payments go to waste.
2) Item is rare/limited and you can’t afford to pay the full amount up front. However, when items are rare/limited, retailers don’t waste time with layaway – they make the sale to the person who can pay.

The other reasons cited in the article are pretty weak. Taking advantage of a sales price? Retailers slash prices lower and lower until Christmas (oh sorry, was I supposed to say “holidays”?). Keep the item away from “prying eyes” – a corner case.

All of that said, layaway is better than racking up a ton of credit card debt. But that is a poor benchmark. The better option is to save, then buy. Even better is save, have the cash, pay with a credit card, and pay the bill immediately.

@ Joel Dockery II

October 28th, 2011
11:03 pm

Oh, and Bella, if retailers hated it, they wouldn’t do it. It won’t happen after the recession because there won’t be a demand for it. Retailers will offer it whenever possible.

99%

October 28th, 2011
11:27 pm

Hooray! The 99% can now buy toys for their children on layaway from the billionaire heirs of Sam Walton. The American Dream is alive and well! You just have to put it on layaway with the 1%.

Ole Guy

October 29th, 2011
11:42 pm

The layaway concept was (probably) a great financial tool in the early days of consumerism…the years following WW II. As BankAmeriCard (forefather of VISA) came into popularity in the early/mid 60’s, the “play now/pay later” concept became an American obsession. While SMART consumers realize the fallacy of this concept, they understand that, indeed, they are “too poor” to pay the bank the finance charges which go along with “play now/pay later”. Now, we see Atlanta’s leading financial advocate espousing a return to this fallacy where the retailer has every opportunity to win while the consumer has a fair-to-better-than-average “opportunity” to lose.

In the RESPONSIBLE use of credit, the wise consumer enjoys a period…generally a month, of “free” money, that is, money which can be realized at “no cost”. The layaway concept demands that the consumer surrender monies for the privilege “playing later”. The retail world, meanwhile, realizes a tremendous interest income potential.

The layaway concept…a fine instrument during (so-called) simpler times…is a fine tool for the undisciplined consumer, one who, like an out-of-control alchoholic, must have that last buzz of satiation. If you truly love your kid(s), and the ONLY way you can bring a little joy into their Christmas Morning is through layaway, do yourself a favor…DON’T!

If the store hasn’t received full payment by a certain point in time, they are more apt to sell the item to the first consumer who has full payment ability. Your down payment will, in all probability, be fully or partially forfeited, and YOU WILL LOSE.