While watching tv the other day, I noticed that Kmart is really pushing their layaway plan. It seems that layaway has made a comeback this year. I remember layaway from my childhood and that it was a popular way to purchase Christmas gifts, but it seems like the popularity of credit cards had done away with it.
Until this year.
I did a little research, and I think I like the idea of layaway. At least as compared to buying something on a credit card and having to pay it off later.
Of course, it’s not free. From what I understand, Kmart’s layaway plan requires a $5 fee, plus a down payment of $10 or 10%, whichever is greater. Make all your payments, the item is yours for just $5 over the price of the item. Default and you lose your fee and down payment.
Thinking about it, I think I like the idea of layaway, at least as compared to the idea of buying something on a credit card and paying ever increasing interest. Mentally, there’s more incentive to make the payments – you’ve already paid money and if you don’t pay, you don’t get your item. It’s not like getting something for nothing and then having to work to pay it off. The reward at paying off your credit cards is being debt free (which sounds great to me, but others don’t see it as much of a reward). The reward for paying for your layaway item is actually getting to take the item home.
Of course, the real plan should be to not buy things you can’t afford and budget yourself to save the money so that you can buy the item in full if you really want it or need it. But that sort of budgeting doesn’t work for everyone. That said, layaway can be an educational process in a way. It can teach you to budget a little bit every month until something is paid off – if it works for making layaway payments, it can also work for saving on your own.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
With the economy being the way it is, it will be interesting to see if other retailers decide to bring the lay-away option back. I believe Wal-Mart did away with it a couple of years ago.
I’m not really into buying stuff in layaway but I like your idea of putting your savings on a layaway plan: putting a little every month until you reach your savings goal or pay off a loan or a credit card. It’s similar to the concept of snowflaking but I think most people are more familiar to the term layaway vs snowflaking.
I want to open a smartypig account so badly for next year’s holiday purchases. That way it’s separate from my savings account and emergency account.
We have done the 5-pay or 4-pay plans with HSN for computers in the past (no credit needed, but you still make payments) but you get the item up front instead of at the end of the payments. But there’s no interest or fees, so that’s nice.
I remember Layaway back in the day when I was a kid and man…it was a mess back in that department. Clothing and stuff everywhere – I was amazed that anything was in decent condition when we got it at the end of the payments my mom made.
It’s good in theory, but it’s only as good as the people behind the counter, and that always worries me a little, because Kmart and Target and even Macy’s aren’t known for employee satisfaction.