Smart Military Money

This is day three of our series about holiday budgeting, Put a Bow on Your Budget: 6 Days of Advice.

It seems like there are credit alternatives lurking around every corner, promising the benefits without any potential damage to your score.

Unfortunately, many of these options can be just as harmful to your financial stability as purchasing with a credit card, even when they are advertised as the solution to all your problems.

A popular credit alternative is layaway. Check out the facts about layaway programs to see if they are a good option for you, or if you’re better off taking the time to save up for that big purchase.

Layaway Advantages

With the holidays just around the corner, you’ve probably noticed more department stores are offering a layaway program than ever before. Layaway faded from the public view during the rise of easy-to-get lines of credit of the ‘80s and ‘90s, but the financing option has reemerged during the recent recession.

Layaway is designed to help those who can’t purchase an item in full be able to afford it without using credit. The store will hold your item(s) for anywhere from a few months to a year while you make weekly payments until the purchase price is reached.

Some of the benefits include:

• Guarantees your items won’t be sold out
• The store will keep your items until they’re paid off to keep holiday gifts a surprise
• If you aren’t eligible for credit, you can still make all your holiday purchases
• Any late payments won’t show up on your credit score

Layaway Pitfalls

With all these benefits, layaway may seem like a no-brainer but there are also some unwanted downsides to layaway to consider as well. Here are a few potential problems:

• Items purchased on layaway at full price won’t be reduced, even if the price if knocked down during a late holiday sale
• The fees for purchasing inexpensive items on layaway can be higher than the potential interest on a credit card
• Fees can vary anywhere from 5 to 150 dollars
• If you use credit to pay off layaway you are defeating the purpose as well as saddling yourself with double fees
• Not only can down payments be expensive, charges for late payments can really skyrocket quickly

The benefits of buying on layaway are mixed, so do yourself a favor and check the fine print and use common sense to make sure your credit score and bank account secure.

Thanks to Matthew Simoneau for the photo under a Creative Commons license from Flickr.

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