How can I use layaway plans for budgeting?

By Ayton MacEachern AAA
A:

Layaway plans are a way to buy larger items without having to come up with the entire cost at once, and without paying the exorbanant interest fees associated with most credit cards. Many stores will even allow you to put an item into layaway with no fees. Obviously, the disadvantage of layaway is that you cannot have the item you purchased until it is paid off in full. However the many advantages (such as no interest, fixed future price and no-risk of default over a missed payment) is often more than enough to outweigh the credit card interest that can be avoided. As well, layaway plans report to credit bureaus, so paying off your item over a series of equal installments is a great way to add another good reference to your file. (Read Consumer Credit Report: What's On It to take a closer look at the various components and considerations of the personal and financial data that go into this dossier.)

For many, layaway plans are used as a budgeting tool. Instead of trying to save for an item in your own account, the layaway plan is a forced savings program which has to go towards the purchase, and cannot be used for something else. By adjusting your household budget to allow for the layaway payments, you are getting into the habit of saving a regular amount. When the layaway payments have ended, you already know you can afford them, so you might as well continue the payment into your own savings account.

For their forced savings, no interest and lower-risk advantages, layaway plans are a great way to obtain the larger items you may require without having to borrow the money. With no interest, this will be much quicker than the same payment against a store credit card.

This question was answered by Ayton MacEachern

RELATED FAQS

  1. What is the difference between a prepaid credit card and a gift card?

    Although prepaid and gift cards are used in the same manner, a prepaid credit card can be used repeatedly, while a gift card ...
  2. What is the difference between arbitrage and speculation?

    Arbitrage and speculation are very different strategies. Arbitrage involves the simultaneous buying and selling of an asset ...
  3. How can I budget for both short-term expenses and long-term goals?

    The first step in planning for long-term goals is actually determining how much you spend on short-term expenses. Once you ...
  4. How do I lower my debt-to-income (DTI) ratio?

    A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your overall income. Lenders ...
RELATED TERMS
  1. Policyholder Surplus

    The assets of a mutual insurance company minus its liabilities. ...
  2. Net Premium

    The expected present value of a policy’s benefits less the expected ...
  3. Quick Liquidity Ratio

    The total amount of a company’s quick assets divided by the sum ...
  4. Credit Card Authorized User

    Definition of an authorized user of a credit card.
  5. EMV

    A standard relating to integrated circuit cards, point-of-sale ...
  6. Integrated Circuit Card

    A card that has an embedded circuit, such as a computer chip. ...
comments powered by Disqus
Related Articles
  1. Best Business Credit Cards
    Savings

    Best Business Credit Cards

  2. 3 Credit Card Benefits You’re Paying ...
    Credit & Loans

    3 Credit Card Benefits You’re Paying ...

  3. 5 Biggest Money Mistakes & How To Fix ...
    Budgeting

    5 Biggest Money Mistakes & How To Fix ...

  4. 7 Weirdest Things You Can Buy With Rewards ...
    Credit & Loans

    7 Weirdest Things You Can Buy With Rewards ...

  5. I Want Christmas To Be Debt-Free
    Budgeting

    I Want Christmas To Be Debt-Free

Trading Center