Holiday shopping: Layaway or credit cards?
By Erica Sandberg
Dear Opening Credits,
I wanted to get a leg up on Christmas shopping this year. Money is tight, as always. I do have a credit card that I can charge with, but I'm also thinking about using the stores' layaway plans. What do you think I should use? I value your advice. -- Genevieve
No one wants to overspend and go deep into debt, but good intentions often go awry during this time of year. Therefore, I'm glad you're thinking about the best way to use your cash and borrowing power now.
Whether you charge the items or take advantage of a department store's "pay over time" plan, you can come out ahead. Here's what you need to know about both ways to pay.
Layaway plans. Some retailers are offering consumers the ability to pick out the merchandise they want, leave the items at the store and then pay for them all in weekly, biweekly or monthly installments. There is a fee involved, but it's usually low -- around $5 or $10. When the bill is satisfied, you get to take it all home.
The positive aspects of layaway plans over credit cards include:
Drawbacks? Not all stores offer layaway, and those that do might only allow it on certain types of items, such as toys and electronics. Home essentials that you may want to give (or keep) could be exempt. Some stores charge cancellation fees if you change your mind, which can be a problem if money is as tight as you say. Also, you may buy the item before it goes on deep holiday discount and be stuck paying the full price.
Credit cards. There is nothing wrong with paying for holiday expenses with a credit card, as long as you don't carry that debt deep into the new year. Let's look at the advantages of using plastic over layaway.
Of course, credit cards can also let you spend too much. When that happens, the balance can stress out your budget even if you delete it within the desired payoff time frame. And if you don't pay it down quickly, the finance fees will make everything you bought more expensive.
The best way to use plastic for holiday spending (OK, all spending) is to plan for expenses and micromanage the charges. Before swiping, always make certain you can afford to pay the entire cost within a few months or less. So if you drop $1,500 on those pre-January items, be sure to send $500 (plus a little more for finance fees) on a fixed basis so you can be in the clear by March.
You can also use a combination of both credit cards and layaway. Do whatever works and keeps you on your best financial behavior. Create a list for all that you want to buy, where you want to get the things, and which payment option you'll use. Oh, and don't forget about cash. There's still time to save for at least a few of those must-haves.
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.