Old-fashioned layaway plans called smart way to buy on time

By Loretta Kalb -- Bee Staff Writer
Published 5:05 AM PST Sunday, Nov. 18, 2001

Remember layaway?

More than a generation ago, that was how many consumers brought home their gifts for the holidays.

Shoppers would choose their merchandise and have the store place it on hold. Then they made regular payments toward the full purchase price.

Now, say the experts, layaway plans are becoming a thing of the past. While stores such as Wal-Mart, Kmart, Circuit City and TJ Maxx offer them, many other businesses have abandoned the service in favor of more lucrative department store credit cards.

"The wide and easy availability of credit did away with the popularity of layaways," said Paul Richard, executive director of the nonprofit Institute of Consumer Financial Education in San Diego. "As soon as many department stores started issuing cards to their customers, layaway ... started to wither away."

Even so, Richard and many other debt-management experts see value in the the layaway concept because it requires no interest payments and, unlike credit cards, makes it easier for consumers to avoid debt.

"To me, it's like saving the money before you spend it, unlike a credit card, where you buy the goods first and hope you can pay for it along with the interest," said Mary Hunt, publisher of the Cheapskate Monthly personal finance newsletter.

Of course, more than savings on interest can be gained from layaway.

Sharon Weber, spokeswoman for retailer Wal-Mart, based in Bentonville, Ark., says layaway is a good way to hide presents from kids who tend to sort through closets to preview their gifts.

"We get to act as Santa and hide those presents," said Weber. "It was wonderful to put things on layaway when my five children were young. I wouldn't have to find a hiding place in the house."

That's exactly what Brenda Burris of Wilton did when her three children were little.

"If you put a gift on layaway, then the store has to hide it for you," Burris, a medical office assistant coordinator, said outside the Wal-Mart in Elk Grove.

Once, Burris said, she "hid" a pingpong table and even a canoe from her husband by buying the items on layaway.

But Burris also likes the idea of avoiding interest charges. That was particularly important when her family was getting started.

The drawback of layaway, she added, was the need for repeated trips to the store to make regular payments.

Still, this fast-disappearing customer service has plenty of advocates.

Judi Elliott, director of education for the Consumer Credit Counseling Service of the Sacramento Valley, said one advantage is that holidays gift selections can be made early. But most of the payments can wait.

That strategy of paying for an item gradually is similar to developing spending discipline.

"One of the single most important things the average person can do for himself is to have a budget," she said. "Everything flows from that."

Avoiding interest charges, of course, is also key.

"The people who get themselves all charged up at Christmastime and the holidays we refer to as 'debt-heads,' " said Richard of the Institute of Consumer Financial Education.

But he acknowledges that consumers get plenty of encouragement to charge.

Advertising, special promotions and appeals to use credit this holiday season could top $100 million, Richard estimated.

Retailers and makers of big ticket items such as furniture and electronics likely will spend even more urging shoppers to open new credit accounts, he added.

And data show that there typically are plenty of takers.

At the end of last year, U.S. households on average had access to more than 13 payment cards, according to the credit-tracking firm, CardWeb.com Inc., in Frederick, Md.

That included 4.8 bank credit cards, 6.7 retail credit cards and 1.9 debit cards.

Average credit card debt per household, CardWeb.com said, reached $8,562 at the end of September.

Brenda Mitchiner, a bus driver for the Sacramento City Unified School District, said she was determined last month not to reach for her charge card when she decided to buy three pairs of shoes at Wal-Mart.

"I wanted them all," she said last week as she waited in Wal-Mart's layaway line to redeem the shoes. "I didn't have the money right then. Credit was an option. But I was staying disciplined. So I didn't charge it."

At Wal-Mart, customers can place items on layaway for 60 days with a minimum 10 percent deposit.

They then make additional payments whenever they want as long as the items are paid for in full within that 60-day time limit.

However, during the holidays there is a caveat: Customers are asked to pay in full and pick up their items by Dec. 15. In the meantime, shoppers who change their minds about a purchase can get their money back.

That flexibility is one of the advantages to layaway, said Cheapskate Monthly's Hunt.

"Some stores charge a restocking fee," she said. "But there's no legal contract. You can change your mind."

Select stores among Kmart's 2,100 stores offer layaway, said spokeswoman Julie Fracker at company headquarters in Troy, Mich.

Customers can pay over a 10-week period, starting with a deposit equal to $10 or 10 percent of the merchandise value. Then the customer agrees to make biweekly payments during that time.

Most popular, she said, are the big ticket items such as leather jackets, televisions, VCRs or DVD (digital versatile disk) players.

But debt counselors caution that finding a method of making a purchase is far less important than keeping perspective about what's important during the holidays.

"Remember, especially in this time of our nation's history, there's no way to put a price tag on what truly matters," said Hunt. "If you don't have a lot of money, the blessing is that you're going to spend more time with your family than you will spend money. And that's what your loved ones really want."

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