October 27th, 2011

Pros and Cons of Using Layaway This Holiday Season

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It’s not even Halloween yet and the mania around holiday shopping has already begun. The latest ploy to send holiday shoppers into a spending frenzy? The reemergence of the layaway plan. In response to customer demand and the current state of the economy, Walmart has decided to join other major retailers like Sears, Best Buy and Toys “R” Us in bringing back the old-fashioned layaway program.

Using a layaway system seems like a good alternative to a credit card at first glance, but like any financial decision, it’s always best to weigh the pros and cons before jumping in. A layaway plan can be a good choice for some consumers, but there are other things to consider before you decide to leave your credit cards out in the cold this winter.

Layaway can save the day…

A layaway program is simply another form of financing. A shopper generally sets up a six- or eight-week payment plan with a company, making regular installments until they’ve paid off the entire cost of the purchase. Once the items are completely paid for, they can be picked up at the designated store.

For consumers with bad credit history or no credit at all, this can be a good option. Buying things on layaway allows you to buy items you can’t afford to pay for all at once without using a credit card or loan.

For those without good credit, you won’t need to worry about getting approved for a credit card or getting hit with a hard inquiry. Layaway can be a good choice over using a credit card because it forces you to plan ahead and budget for your holiday purchases over an extended period of time.

Stretching payments out over time can also help you really appreciate each purchase you’ve made. By working hard to make the payments on time every few weeks it allows shoppers to buy their gifts without accruing large amounts of debt.

…Or lead you astray

Layaway plans can have positive benefits, but there are also some negative aspects worth considering. The most obvious drawback to buying something on layaway is that you don’t get the instant gratification that comes with buying something with cash or credit. Depending on the length of the contract, shoppers may have to wait up to two months before actually receiving their purchase.

Also, something to keep in mind is that this isn’t a free service; there are fees associated with layaway programs. Sears charges a $5 service fee for all new layaway contracts, as well as a $15 cancellation fee should you change your mind about the purchase.

Planning ahead for holiday gift giving by using layaway plans is budget-conscious, but it can also be constrictive. There are limits on the types of eligible items and a minimum purchase amount required for layaway plans. Walmart requires that the total purchase be over $50, with each item costing at least $15. Their layaway plan is also restricted to the toys, electronics and fine jewelry departments only.

What does it all mean?

Whether you’re planning on going on a layaway shopping spree or gearing up for another season of serious credit card spending, remember that the only surefire way to make it through the holiday shopping season is to have a plan in place.

Know what you’re willing to spend ahead of time so you don’t start the New Year with an unexpected mountain debt. Be sure to check out this informative article on how to prep your credit for holiday shopping.

Give credit where credit is due,

Danielle Belfatto, Karma Contributor

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.


  1. There is a local store in the North East called Benny’s its like a mini department store with a little bit of EVERYTHING, they offer a FREE layaway plan all year round and there is no minimum purchase or a cancellation fee, and when you pick up if you decide you dont want any of the items they take it right off the bill and refund you if you have already paid over the value of what you are removing!

    kerri at 10:35 am on October 27, 2011
  2. The most obvious draw back is that you don’t get the thing right away? Delayed gratification is one of the foundations of frugality and smart spending. (What is saving, after all, but delayed gratification?) The other day (in one of the twitter chats) someone was saying that layaway is as bad or worse than payday loans. I’m not seeing it.

    Not having a thing right away (which shouldn’t be a problem because it’s a present anyway), and a small fee for set-up and cancelation doesn’t seem like that big of a problem. Maybe that’s just me. How does that “lead you astray”? Is it a $15 fee for each item canceled?

    Saving up the money you would be spending on layaway and buying something all at once would save you the small set-up fee, and possibly the cancelation fee if you decide you don’t want the thing, but some people benefit from being “required” to make a payment every month for a tangible thing, instead of just putting money in savings for some theoretical thing.

    Megan at 11:05 am on October 28, 2011

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