Family Finance: Layaway plans

Family Finance: Layaway plans

SAVANNAH, GA (WTOC) - Fall officially starts Saturday, and before you know it, the holiday season will be here. This year, several retailers are already offering incentives to get you to shop, and one of those incentives is the layaway plan.

Walmart, K-Mart, Sears and Toys R Us are just a few of the big name stores offering interest-free layaway plans this holiday season. If you're unfamiliar with layaway, the process is simple. The customer picks the item they want and pays an initial fee to open the account. Then, there's a down payment which is usually a percentage of the total cost. Next, the customer agrees to make monthly, weekly or even bi-weekly payments until the item is paid in full.

Critics say layaway can be a bad idea for several reasons such as hidden fees, and the fact that spending money you don't have could be risky. Finance Professor Dr. Bill Dowling of Savannah State University disagrees, and believes layaway is a better idea than paying for things on a credit card.

"I'm not a strong fan of credit. Layaways offer people the ability to acquire a good,
to acquire what they want and to not worry about paying for it later," he said.

Dowling recommends reading the fine print.

"Watch out for fees, watch out for penalties. What happens if you miss a monthly payment? What happens if God forbid you can't finish paying for the item? What are the penalties involved?" he said.

Dowling pointed out that many stores are offering these plans because holiday retail sales are down, and stores recognize people are paying off credit cards more than in years past. So, if they sell a product early in the cycle at or near the highest price, their profit margins are automatically higher on the item to start with.

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