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Is layaway the best way?

With the holiday shopping season upon us, retailers have brought back layaway plans to entice shoppers to their stores. For consumers without credit cards, layaway plans allow them to make purchases now instead of waiting until they have the full amount. Many think layaway plans are a cost effective alternative to using credit cards. However a Senator from NY believes these plans can be more costly than credit cards.

U.S. Sen. Charles Schumer told the Associated Press (AP) Sunday that a $5 layaway fee and a 10 percent down payment can equal a credit card that charged more than 100 percent interest for items like the Rock N Roll Elmo doll (retails for approximately $53). Schumer further stated that credit card interest rates are capped at 30%.

"These layaway programs are nothing more than hideaways for sky-high interest rates that consumers would never tolerate with a credit card," Schumer told the AP.  The Senator believes that there needs to be clearer information regarding these fees so that consumers understand what they are getting into. He has warned retailers he will get the Federal Trade Commission involved.

Brian A Dodge of the Retail Industry Leaders Association disagrees with the Senator’s assessment.

"It is a leap to suggest that $5 on a $100 purchase is twice the going rate on credit cards, which today averages 14.99 percent nationwide," said Dodge.

Dodge suggests that the terms are simple and transparent. Unlike credit cards, layaway terms never change.

Consumer Reports suggest that if you are planning on using layaways this holiday season you should read the terms carefully before signing up. Sometimes the item could get put back on the shelf if you miss a payment by more than 7 days and you may have to double your payment the next time you come in.

So what are some alternatives to layaway plans or credit cards? Some suggestions include saving up your money, buying a more affordable item or waiting for the item to go on sale. Next year considering joining a Christmas Club Savings plans through your local credit union or bank. These plans typically are started in January and allow individuals to save money for next Christmas.

Regardless of when and how you plan to pay for your items experts agree that you should not spend more than you can afford. Develop a budget and stick to it even if you are using credit cards. If you’re currently in debt and you’re struggling financially you may want to consider selling some of your structured settlement, annuity or other future payments in order to pay off these debts. Avoid getting further into debt by making gifts or doing a Pollyanna.