What's Better: Layaway or Credit Cards?

Reply Sun 2 Jan, 2022 06:00 am
What's Better: Layaway or Credit Cards?

Tip #1 Fine Print
Know thy policy.

"Layaway policies vary by store," says Carrie Rocha, author of Pocket Your Dollars book and website.
"You really do need to check with the store and read the fine print."

Watch each policy specifically for the down payment amount, the cancellation fee and the payment schedule.

To use a layaway program, first go to the store and find the items you want. At the designated layaway counter,
you will be required to make a down payment and possibly pay a $5 to $10 fee. The down payment will range from
a percentage of the total of your items to a flat $10 fee. Then, make scheduled payments and take home the items
when they are paid off.

Tip #2 Cancellation Policy
But what if you cancel the layaway?

"If you don't pay for the items within a set time frame, you need to cancel it," says Rocha. "There is a nominal fee,
usually $5 to $15, but some stores like Walmart are totally free."

This season, Walmart is also offering a price-match on layaway items so you can get the lowest price possible.
Check out their price matching policy here.

Tip #3 Layaway vs. Credit
The downside of layaway is you do have to prioritize your budget to pay off your entire bill before Christmas so you can have
those items under the tree. Contrast that with using a credit card, which you don't have to pay off before Christmas.

"Layaway in a worst case might cost you $15," says Rocha. "Let's say you already have a balance on a credit card and you buy $450 in toys.
By the time you pay that off, you will pay something like $300 to $400 in interest in those toys and it will add 14 months if you are making
a minimum payment. It really is much cheaper to use layaway than to put something on a credit card."

Published: November 20, 2013

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Real Music
Reply Sun 2 Jan, 2022 08:16 am
Updated: November 17, 2021

What Is Layaway?
Layaway is a way of buying something in which a consumer makes a down payment on an item, which the store then holds for them while they pay the remainder of the price in installments, after which they take possession of it. A layaway plan ensures that the consumer will get their chosen merchandise when they've fully paid for it.

Layaways vs. Credit Cards
There are both similarities and differences between layaways and credit cards. Layaways and credit cards are each used to purchase an item that an individual cannot currently afford. Both have late payment fees as well as penalties for default. Both also allow for payment in installments over a certain time period.

One of the differences between the two is that with a credit card, an individual can take home the item they purchased right away; with layaway, an individual can only take home an item after they have fully paid for it.

Layaway requires a deposit, whereas a credit card does not. Depending on the layaway, you do not pay interest on the unpaid balance.

With a (credit card), you do, which can quickly increase the cost of a purchase and send individuals into credit card debt.

If you default on a layaway plan it will not impact your credit score, whereas on a credit card it will.2 Also, you do not need good credit to use a layaway program, but you do need good credit to receive a credit card or at least good terms on a credit card.

Credit cards are usually a better option if you can pay off your balance in full the next month and not accrue interest. Credit cards allow you to build a positive credit history, take advantage of rewards plans by which you can earn points or cash back, and receive your item right away. However, if you can’t pay your balance in full the next month, layaway can be a better option to avoid accruing the high-interest debt associated with credit cards.

The Origin of Layaway Plans
The advent of layaway plans came during the Great Depression of the 1930s, when most individuals and families were suffering greatly financially. It stayed popular until the 1980s, when the increasing availability of credit cards began to make it superfluous. For example, in September of 2006 Walmart ended layaway service after 44 years, according to reportage by NPR. The company blamed declining demand and escalating costs.

However, in September of 2011 Wal-Mart resumed the service, due to new financial difficulties brought on by the Great Recession, and subsequently increased consumer credit constraints. However, it was only brought back for the holiday season. It remained in place until 2021, when Walmart once again discontinued its layaway program, replacing it with a buy now, pay later (BNPL) program called Affirm.

In essence, the Affirm program lends customers the money to buy their item, which they don’t have to wait to take home. They repay the loan with regular payments over a set amount of time, anywhere from three to 24 months, depending on the size of the loan. Items available for such financing include electronics, video games, tools, toys, musical instruments, jewelry, home improvement, and apparel.

Though there are some 0% promotional interest rates available, the offer generally comes with interest rates ranging between 10% and 30%. Creating an Affirm account will not affect your credit score, but purchasing an item with it could. These features differentiate the program from other BNPL offers, making it more like using a credit card. However, unlike credit cards, Affirm does not charge fees of any sort.

Does Anyone Still Use Layaway?
As of 2021, there are still some companies that offer layaway programs, though the details vary among them. Here are eight.

Army & Air Force Exchange
This military retailer offers three layaway options.

***30-day layaway for all clothing, handbags, and shoes
***60-day layaway for all other merchandise (except jewelry)
***120-day layaway for fine jewelry

Your purchase must be for at least $25, and there is a 15% down payment and nonrefundable $3 processing fee. If you cancel the purchase, a $5 fee is charged. Excluded merchandise consists of clearance items; computers, peripherals, and major appliances; furniture, mattresses, exercise equipment, and seasonal and outdoor living items; and electronics costing $299 and up. The service is only available in the store.

Baby Depot and Burlington Coat Factory
Owned by the same company, these two stores offer the same layaway plan. It is not available at every store, though, so you should check out the online list on the Burlington website.

You can put your merchandise on layaway for 30 days. There is a down payment of $10 or 20%, whichever is greater, and a nonrefundable $5 service fee. Payments can only be made in the store by cash, check, or credit card, and you can pay by installment or in full. If you cancel, there is a $10 fee. Ineligible merchandise includes food items, wall art, rugs, lamps, and furniture.

Big Lots
Big Lots has two layaway programs. One is called Price Hold. It means that the store will maintain the current price of an item when it is out of stock or when you can’t pay for it in full. The price will be maintained until either the item is restocked or you have fully paid for it. There is no set time limit, but the company will require you to notify it when you are within two weeks of paying it off to be sure that it is available for pickup.9 The program is only available in stores that sell furniture, a list of which can be found by using the Store Locator on the Big Lots website.

The Progressive Leasing program is a 12-months-to-ownership offer (in California it’s three months). You may take your merchandise home, but you are only leasing it until you pay for it in full. To qualify, you only need to be 18 years old, have a valid Social Security number or individual taxpayer identification number (ITIN), have an open and active checking account, and own a credit or debit card. There are no application or processing fees. Your payments will be drawn electronically from your credit or debit card.11

You can purchase your product early, but it will cost more than the retail price to do so (except in California). Eligible items include sofas, love seats, sectionals, dining sets, and mattresses, as well as seasonal items such as outdoor patio furniture, gazebos, umbrellas, chairs, and more.11

Hallmark Gold Crown
Some Hallmark Gold Crown stores offer a layaway policy. It is only in effect from July through December, and the layaway term is up to 90 days. There is a 20% down payment. The policies can be different at different stores, so make sure to check with a sales associate for specifics on fees, cancellation, possible interest charges, etc.

Kmart and Sears
Both online and in-store layaway plans are offered by Kmart and Sears, which are owned by the same parent company, Transformco.

The duration of layaway at the remaining Kmart and Sears stores is either eight weeks or 12 weeks, with the latter only available in the store for items costing $300 or more. There is a down payment of $10, and payments must be made every two weeks either online or in the store. There is a nonrefundable $5 service fee for eight-week items and a $10 service fee for 12-week items.

If you miss a payment, you have seven days to catch up, after which your layaway plan is canceled, and you pay a $10 or $20 cancellation fee, depending upon the length of your layaway. If you cancel the contract, you will get a full refund of any payments made to date except for service and cancellation fees. Only items that are marked “Layaway Eligible” can be purchased with the plan, and you can find that label online on the product page.

Unfortunately, according to reporting by the health website Best Life, Kmart is closing most of its stores, with only six scheduled to be still operating at the end of 2021. The Chicago Tribune reported that only 35 Sears stores remained in business as of Sept. 16, 2021. Their previous parent company, Sears Holdings, filed for bankruptcy in 2018 and was acquired by Transformco, which has been closing stores and selling off assets.

Marshalls has a program called eLayaway that offers loans through a company called Vivaloan. Same-day approval is possible after filling out a seven-minute application. A 10% down payment is required, and there is a nonrefundable $5 service fee. Installment payments begin within 30 days.

Even people with poor credit can get one; you only need to be 18 years old with a regular income. On-time loan payments are reported to credit agencies, which can improve your credit score over time.

What Is a Layaway Plan?
Layaway is a purchasing method by which a consumer places a deposit on an item to “lay it away” for later pickup when they come back and pay the balance. It often charges no interest and is available to almost anyone, even those with bad credit. Paying on layaway generally does not affect your credit score, unlike with BNPL plans and credit cards if payments are missed.

What Are the Origins of Layaway?
Layaway plans first appeared after the Great Depression, motivated by the financial hardship so many people were experiencing. They remained popular until supplanted by credit cards in the 1980s, then made something of a comeback after the Great Recession of 2008. Currently, their popularity is once again receding, with BNPL plans proving more popular.

Is a Layaway Plan Better Than Using a Credit Card?
It depends. Credit cards allow you to own your purchase immediately and don’t require a down payment to do so. Using them responsibly can build your credit score, which layaway plans usually don’t do. Furthermore, credit cards come with rewards programs, unlike layaway plans.

That said, layaway plans usually don’t charge interest, while credit card interest rates can be quite high and mount quickly. And in the case of a default, with a credit card, your credit score will be damaged; with a layaway plan, it won’t be affected. And of course, you need good credit to get a credit card but not to be eligible for a layaway plan.

If you can pay your credit card bill in full every month, it is a better way to buy goods than a layaway plan is. If you can’t, however, then layaway is probably the way to go.

The term “layaway” refers to the retail purchasing method by which consumers place a deposit on items of merchandise—to “lay them away” for later pickup at a time when they have the funds to pay the balance in full.

Layaway programs are generally geared toward shoppers with limited income who may struggle to pay for purchases in one lump sum.
Created during the Great Depression of the 1930s, layaway programs declined during the 1980s as the ubiquity of credit cards decreased their utility.

Understanding Layaway
Layaway works for consumers who have limited disposable incomes and are unable to make larger lump-sum purchases. There is sometimes a fee for this because the seller must keep the item in storage until the payments are completed. With little risk involved for the seller, layaways can be readily offered to those with bad credit. If the transaction is not completed, the item is simply returned to the shelf. The customer’s money may either be returned in full, forfeited entirely, or returned minus a fee.

Layaway programs also benefit retailers by allowing them to offer products to lower-income customers as a type of savings plan. Because the customer has already made a commitment to purchase the product on layaway, they cannot succumb to the temptation to spend that money elsewhere.

Online Layaway
Online layaway programs let consumers purchase items via scheduled deductions that are taken from a checking account. Online layaway simplifies layaway for both merchants and consumers by removing associated storage and bookkeeping costs. The layaway items remain housed at the distribution center during the layaway period, rather than taking up valuable retail warehouse space.

0 Replies
Reply Sun 2 Jan, 2022 08:43 am
I work in business credit, but a lot of it applies to personal credit as well.

Use cards, and live within your means.

That is, get the highest limit you can when you are first starting out (or rebuilding) from a card with no annual fee, and only buy stuff you can pay off when you get the next bill.

In a way, you can simulate the dubious benefits of layaway by simply keeping your $ in savings until you can pay--- and then use your card. When the bill arrives, use the savings to pay it off. And keep whatever bit of interest you get from savings. You don't get interest with layaway. Lather, rinse, and repeat.

Yes, I am saying to use the credit regularly and not just for emergencies. You are building or rebuilding here. Usage will help you build credit. At the same time, don't max out your cards. If you only have $100 in credit, don't use it to buy anything that costs more than about $25-30. This is because utilization rate is a part of your personal credit score.

Why the highest limit and not the lowest interest rate? Higher limits will beget more higher limits. And interest rates are meaningless if you pay on time.

As your credit improves, you'll start to see lower interest rates. Once you have good credit (about a 720 or better), look around for the best 3 credit cards you can get in terms of either cash back or other rewards which you will use. That is, airline miles are meaningless if you don't travel much.

Use your three cards regularly, and if you get a choice of a better cash back rate for a certain class of purchases, study your spending and take advantage of it (for us, it's online shopping).

In short--
  • Never pay an annual fee.
  • Always pay on time and in full. If you need something and you don't have enough to pay for it when the bill comes due, don't buy it. In an emergency, your savings is generally better to use (only if you are incapable of paying off the credit bill promptly), particularly since standard savings account interest rates are terrible these days.
  • When you are first building or rebuilding, get the highest limit you can. Once your credit improves, higher limits will come to you.
  • Get rewarded for your credit habits. This means paying on time, in full to increase your score, and going after cards with good rewards programs if you don't have to pay an annual fee and will use the perks.
Credit is a valuable financial tool. Good credit will get you a better rate on your mortgage and car loans. Bad credit will make it so that you may not get either.

And always remember: credit is not play money.
Real Music
Reply Sun 2 Jan, 2022 09:02 am
Use cards, and live within your means.

1. I know that. And you know that.
2. I personally have no need for layaway.
3. I pay off any credit card debt (in full) immediately, sometimes before I even get the statement.
4. With that being said, millions of people still fall into the credit card trap.
5. I feel that layaway is good for people who are not disciplined on how they used credit cards.
6. I feel that layaway is a way to protect those undiscipline card users from themselves.
7. I wouldn't promote the use of layaway for myself, because I am not an undiscipline card user.
8. But, I would strongly recommend layaway for the undiscipline card user.
9. I would also discourage the undiscipline card user from purchasing anything on credit unless it was a true unavoidable emergency.
10. Unfortunately, layaway is not as widely available as it once was.
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Real Music
Reply Sun 2 Jan, 2022 09:25 am
1. If the undiscipline card user got a credit card with a very low limit that would prevent them from getting into out of control debt, they could then build credit while they are paying on that very low limit.

2. When I say a low credit card limit, I am talking about a max limit that might only be $200.

3. That way they can charge maybe $50 worth of gas for their car each month and pay it off in full each month.

4. That way they establish credit by paying each month.

5. But, as far as anything that would exceed that small $200 credit card limit, I would suggest that they either pay with cash or put it on layaway.
Reply Sun 2 Jan, 2022 11:45 am
@Real Music,
This is a really good plan, and I honestly think most people should start off this way. You buy a pair of shoes, you charge them, you pay off the balance. You fill the tank once or twice a month via paying with the card. Otherwise, use cash. Etc.

{Note, here come a bunch of numbers}

Over 35 years ago, I worked with a gal who really did treat credit like play money. She would get offers, agree to every single one of them, and then charge...

… cheap leggings from Kmart (yeah, this is even before Walmart became really big).

She had debt and would try to essentially kite it by paying one card with another. I doubt she was even looking at interest rates (because to really get out of a deep hole, you can technically try to pay off your worst interest cards with cash + a small - and I mean small - cash advance from a card with a lower rate), just charging whatever was newest and shiniest.

I have no idea whatever happened to her. She was unmarried, no children, and I'm pretty sure she wasn't yet 30.

So, let's say she's 60 years old right now. Even if she changed her ways the moment I stopped knowing her, IIRC she already had several thousand $ in credit card debt racked up. $10,000 is an easy number to work with.

Let's be generous and say her minimum payments were 5%/month. Hence her first minimum payment would be $500. The balance goes down a little, but she's still paying interest on the balance. In Rhode Island (where I knew her), the max her credit card issuers can charge is 21%.

One month of 21% of her $9,500 balance is $166.25. Add that to her balance, and she's still in a deep hole, with an $9,666.25 balance. Plus, the interest compounds (probably daily), so the interest she has to pay is a little more and more as we go on. In this scenario, she pays it all off in around 2 and a half years.

But let's change the hypothetical and say she's being really responsible and trying to pay $2,000 per month. Hence the first month, her balance goes down to $8,000. One month of 21% of $8,000 is $140, bringing her balance back up to $8,140. Still high, but at least it's starting to go down. With compounding, she can't pay off the bill until about 6 months elapse.

But $2,000 per month, on a regular basis, is thoroughly unrealistic for a secretary (which she was, and not a senior one at that). Hell, it's probably unrealistic for people making 5 times more than she probably was.

So it's a lot more likely that it took her 2 1/2 years to pay everything off. This means, probably, not investing in retirement at a young age, when it does you the most good. Hence her responsible ways after her spendthrift ways are actually harming her retirement and are costing her.

It also means that during what were probably prime dating years, she was stuck trying to pay off debt. "Sorry, can't go out, gotta watch my pennies." Marrying someone with enough $ to pull her out of the hole is unlikely.

Her only real move is to get training (hopefully paid for by an employer or the government) and try to get a better job. In the meantime, she has to pray:
  • She never gets really sick.
  • Any car she owns lasts a good decade without needing major repairs (Rhode Island doesn't have much of a public transportation system).
  • Her rent doesn't go up too much/she can always find responsible roommates. At age 25, roommates are a lot easier to find than at age 45 (albeit not impossible).
  • She doesn't fall into a gambling habit or drug addiction.
  • She's never mugged or burgled.
  • She's never swindled or becomes a victim of identity theft.
  • Her clothes (including her cheap leggings) last at least a few years.
  • She doesn't go up or down too much in weight so she can still wear her stuff.
  • She doesn't get pregnant.
  • If she marries, that she doesn't divorce.
  • She doesn't get laid off or stay laid off for more than maybe 2-3 months at most.
  • She never goes to jail.
  • Her insurance never lapses (health and auto, renter's if she can afford it).
That is one miserable, hard existence.

All for a bunch of cheap leggings in rainbow colors.
0 Replies
Reply Sun 2 Jan, 2022 11:46 am
TL; DR : poverty is expensive.
0 Replies
Real Music
Reply Sun 8 Jan, 2023 12:57 pm
When can my credit card company increase my interest rate?

LAST REVIEWED: September 22, 2022

Credit card companies can usually increase your interest rate if they give you 45 days of advanced notice, but there may be steps you can take to lower your credit card interest rate.

Your card issuer generally must give you 45 days of advanced notice before it raises your credit card interest rate for new purchases you make with that card. Card companies are generally restricted from raising the interest rate for your existing balance, but there are certain exceptions.

Interest rate changes for new credit card purchases

A credit card company is generally not permitted to increase your interest rate on new transactions during the first year of your credit card account.

After that initial year, they’re required to provide 45 days of notice before an interest rate change, and any purchases you make with the card more than 14 days after the advanced notice are considered new transactions.

Interest rate changes for an existing credit card balance

A card company is not permitted to increase your interest rate on your existing purchases, except under the following circumstances:

--A temporary rate – such as a low rate on a balance transfer – expires. That temporary rate must last for at least 6 months.

--You have a variable interest rate and the index to which your rate is tied (for example, the U.S. Prime Rate) has increased.

--Your minimum payment has not been received within 60 days after the due date.

--You successfully complete or fail to comply with the terms of an arrangement with your card issuer to lower your interest rate. · Your protections under the Servicemembers Civil Relief Act (SCRA), if applicable, expire.

Lowering your credit card interest rate

If your credit card company increased your interest rate after giving you a 45-day advanced notice, it generally must review and re-evaluate the interest rate for your account at least every six months.

The card issuer may – and in some circumstances must – compare the rate you’re being charged with the rate the card issuer would charge you today if you applied for a new card. If your rate is higher than what you would be charged as a new customer, the card issuer must reduce your rate. However, this rate will not necessarily be as low as your original rate.

If your rate increased because of certain factors, including being late on a payment, the card issuer may consider whether the factors that led the increase still apply.

For example, you may also be able to lower your interest rate by consistently making your payments on time. If your rate increased because you were more than 60 days late in making a payment, the card issuer must reinstate your old interest rate if you make six consecutive on-time payments of your minimum balance after the effective date of the increase.

Contact your card issuer if you believe your interest rate was increased in error.

Reply Sun 8 Jan, 2023 03:45 pm
@Real Music,
Consumers (and businesses, too) should also expect for it to get harder to be approved if they're somewhere in the middle of the pack or lower when it comes to credit scores.

This is due to the economy having issues.
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