Ins and Outs of Using Resurgent Layaway

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They say everything old is new again, and that seems to be the case with layaway.

Once widely available, layaway lost its luster as the use of credit cards became the norm.

But with money tight and credit card interest rates and minimum payments rising, layaway is regaining popularity as a way to pay, and the trend is expected to intensify this holiday season, according to "Early Show" financial contributor Vera Gibbons. She notes layaway was popular last year, and now many stores, such as Sears and K-mart, are trying to capitalize on renewed success.

Gibbons says layaway can work for many consumers, but you have to be careful.

She offered a primer:

Programs all work differently, but basically involve your putting an item you want on hold, paying a fee, and leaving a deposit of 10-to-20-percent of the purchase price. You then make regular payments over set period time at set intervals (weekly, biweekly, monthly, etc.), and the store holds the item as collateral. When you finish paying for it, it's all yours.

Layaway can be appealing to people who have issues with credit cards -- if your credit is limited, you have high rates on your cards, you carry a balance month-to-month, have lots of debt, and you're determined not to take on more. But there's no advantage for you in layaway if you have good credit and pay off your credit card balances every month.

There are fees involved: You pay a set-up fee, typically $5-$10 per contract. Layaway doesn't make sense unless that fee is less than 10 percent of the price of what you're buying so, unless you're setting aside a big-ticket item, such as a flat-screen TV or jewelry, think twice.

A problem with layaway is that you're enticed to spend more than you have available at the time, and you go for it -- you set up the account, only to abandon it once you realize you can't make the payments. So, before you sign on, make sure the payment schedule fits within your budget, make sure you're clear on what happens if you miss a payment, and make sure you're aware of cancellation fees -- they can run as high as $35!

Another disadvantage, and a big one: When you set up a layaway account, you lose the ability to take advantage of price drops or sales on the item(s) you've set aside. So, don't use layaway before "Black Friday" (the day after Thanksgiving and traditional start of the holdiay shopping season), when retailers roll out their best deals And don't use layaway for anything frivolous, or on items that could be obsolete by time done paying for them.

But, for hard-to-find items, limited editions, or hot items expected to sell out, layaway is viable option, particularly this holiday season, because as you know inventory is tighter than ever this year, with retailers not doing a whole lot of restocking. So, if you see something you want -- and love -- and if it's eligible for layaway, go for it!