Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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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.
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.
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:
- You can avoid going into debt.
- The store won't charge interest on your purchases.
- You can secure "it" items before they sell out.
- Storage! If you're buying large items like TVs and sleds,
you won't have to find a hiding spot, preventing loved ones from accidentally
stumbling upon them.
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
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.
- You can purchase the things you want and take them home for
- Almost all stores accept credit cards.
- Credit cards have built in consumer protections (for
example, if the item you buy is missing pieces and the merchant won't help, you
can dispute the charge).
- If you have a rewards card, you can rack up points and even
come out ahead financially (provided you pay the entire bill off in full when
it is due).
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
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
See related: Stores launch layaway plans with an rush, 10 questions to ask about layaway plans
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