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. When should I use a credit card?

    I am currently taking a personal finance class and my teacher continually tells us not to use credit cards for everyday purchases, ... Read Answer >>
  2. I have 3 credit card debts, how can I get them paid off the cheapest way?

  3. How can I improve my credit score?

    If you are looking to take out a loan or apply for a credit card, then it will be very important for you to have a good credit ... Read Answer >>
  4. What does it mean when advertisers say that "financing is available"? Should I trust ...

    When an advertisement says "financing", it means that the seller is going to give you a loan on an item that you purchase. ... Read Answer >>
  5. How do secured credit cards help me build my credit score?

    Find out how secured credit cards function and why they can be very useful for those looking to build or rebuild their credit ... Read Answer >>
  6. What is the best way to start to rebuild your credit after a bankruptcy?

    Find out some simple steps you can take to rebuild your credit score gradually after filing a bankruptcy, starting with a ... Read Answer >>
Related Articles
  1. Personal Finance

    Layaway Plans: Get The Goods Without Going Into Debt

    If using a layaway plan keeps you from having to use your credit card, it could be a smart move.
  2. Personal Finance

    Delayed Interest: Buy More, Pay Much More Later

    Find out the real cost of buying on a delayed interest plan.
  3. Investing

    5 Money-Saving Shopping Tips

    Reducing the amount you spend is the easiest way to make your money grow.
  4. Managing Wealth

    Store Credit Cards: Do The Incentives Pay Off?

    Check out the pros and cons behind store credit cards; they might actually help you save money.
  5. Personal Finance

    6 Major Credit Card Mistakes

    Avoid these pitfalls to keep your credit score healthy and your debt under control.
  6. Personal Finance

    The Basics Of Financial Responsibility

    Just being able to make your credit card payment doesn't cut it. Find out what does.
  7. Investing

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.
  8. Personal Finance

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  9. Personal Finance

    Top 6 Mindless Money Wasters

    If you'd like to save more money, first you'll need to conquer the first step: coming up with the cash.
  10. Personal Finance

    6 Credit Card Rules for New College Grads

    Used well, your credit card can build a credit history that gets you jobs, apartments and a lower car-loan rate
RELATED TERMS
  1. Layaway

    A purchasing method that allows a consumer to put a product on ...
  2. Late Fee

    A charge a consumer pays for making a required minimum payment ...
  3. Returned Payment Fee

    A charge a credit card company may assess to a customer’s account ...
  4. Negative Information

    Data in a consumer’s credit report that lowers his or her credit ...
  5. Price Protection

    A little-known, but common feature offered by most credit card ...
  6. Return Protection

    A common, but little-known credit card perk allowing cardholders ...
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center