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Vacay layaway: Pay now, enjoy later plans spread to vacations

Cruises, airlines, travel agencies offer savers debt-free choices

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Hear the word "layaway" and you'll probably envision presents under the Christmas tree. But instead, imagine yourself at the beach under a palm tree, as travel agencies and airlines have begun promoting vacation layaway plans.

The vacay layaway -- and similar payment options -- allow you to book your dream vacation now and pay for it down the road.

Because of the relatively small upfront payment, "it's easier to make a commitment earlier," says Marty Seslow, vice president of sales and marketing at Gate 1 Travel.

Vacay layaway: Pay now, enjoy later plans spread to vacations

While Gate 1 has offered travel layaway for years, others embraced the option more recently after retailers such as Sears and Walmart began reviving the pay-now-buy-later practice during the heart of the recession as a way to move merchandise.

Now, layaway is expanding beyond items such as TVs and toys. Sears, for example, launched Sears Vacations in the summer of 2012. The website allows travelers to put thousands of cruises and vacation packages on layaway. 

The company says it introduced the option so consumers wouldn't have to skip their vacations because of financial concerns. 

"It's a natural fit for Sears," says Shannelle Armstrong, the company's director of public relations. Layaway already is offered at the chain's physical stores, "so our customers are used to more flexible payment options."

Airlines add payment options
Even some airlines have entered the game. In October, British Airways began offering layaway for vacation packages. "This will benefit both families looking to budget for their 2013 holidays as well as those looking to book a special occasion like a honeymoon or luxury holiday," says British Airways Holidays Managing Director Claire Bentley, in an email statement.

Delta offers something similar -- a two-step payment option, says spokesman John Kennedy. Travelers can book a vacation with a $150 deposit charged to a credit card, and then the remainder of the balance is charged to the card 31 days before departure.

Vacation budgets tight
Whether you pay early or late, vacations aren't cheap. In 2012, consumers expected to spend an average of almost $1,200 per person on their summer vacations, a survey by American Express found.

It's a time when many household budgets are still stretched thin, and many consumers are wary of running up new credit card debt.

As of February 2013, American consumers still owed almost $851 billion in revolving debt -- comprised almost entirely of credit card debt -- according to the Federal Reserve. That figure has increased just 0.5 percent from the low recorded in 2010.

Bruce McClary, director of media relations for ClearPoint Credit Counseling Solutions, says putting a vacation on layaway can be appealing. "This allows people who may not have access to credit to take advantage of opportunities without going deeper into debt."

While the details vary from company to company, vacation layaway typically means paying a deposit at the time you book your trip, then paying off the balance several weeks before you travel.

No set series of payments
Unlike traditional retailers' layaway plans, vacation layaway providers don't require you to pay a set amount every few weeks. While you can do that if you prefer, your only financial obligation is to pay off the balance by a specific date.

Seslow says Gate 1 had considered establishing a set payment schedule, but "it seemed too contrived and constricted."

Before you get into something, know what your cost is for changing your mind.

-- Donald Lichtenstein 
University of Colorado 

Donald Lichtenstein, chair of the division of marketing at the University of Colorado, says layaway appeals to consumers, as well as retailers and travel companies, because of "sheer inertia." If someone has committed to pay $50 a month for a TV or a trip, they're most likely to continue paying that amount each month until the purchase is completed, rather than canceling the purchase.

Or if they put $200 down on a $2,000 trip, knowing they'll lose their deposit if they don't complete the transaction, they'll be inclined to pay up, even if an emergency crops up, because of the financial commitment they've already made, Lichtenstein says.

"Before you get into something, know what your cost is for changing your mind," he cautions.

While you're likely to lose your deposit if you back out on your layaway vacation, there also are typically costs involved for canceling or changing flights when you purchase your ticket directly, unless you buy travel insurance.

And layaway can have drawbacks if you have a credit card that offers points or rewards, he says. By using layaway "you may be missing out on earning rewards."

Before you rush off and put your once-in-a-lifetime trip to Europe on layaway, "take a moment for a quick reality check," McClary warns, and make sure it actually fits in your budget. "Travel is a wonderful thing, but you don't want to go on vacation now and be regretting it years later."

VACAY LAYAWAY: COMPARE PLAN DETAILS
Layaway plan Eligible travel Deposit amount Payment terms Cancellation terms
Sears Vacations More than 5,000 land-based vacation packages and 3,000 cruises At least 10% down No regularly scheduled payments. Pay the balance at one time or in increments. Balance must be paid off before travel begins. Deposit nonrefundable. Also may be subject to vendor cancellation fees
British Airways Holidays Travel packages of $3,000 to $3,999 $900 for packages between $3,000 and $3,499; $1,050 for packages between $3,500 and $3,999 No regularly scheduled payments. Pay the balance at one time or in increments. Balance must be paid off 10 weeks before departure. Generally deposit is not refundable. Some exceptions apply.
Gate 1 Travel Land-based travel packages and cruises $100 for land packages and $200 for cruise packages No regularly scheduled payments. Pay the balance at one time or in increments. Balance for land-based vacations must be paid off 45 days before departure; cruises must be paid 120 days in advance. Deposit is not refundable.
Norwegian Cruise Line Cruises and land-sea vacations Depends on length of cruise and type of cabin. Minimum of $100 for 3-night cruise No regularly scheduled payments. Pay-off depends on length of cruise and type of cabin, but must be paid for at least 60 days in advance. Varies depending on length of cruise, type of cabin. Canceling closer to departure date results in larger penalties, up to 100% of the cruise fare.
Delta Vacations Selected vacation packages $150, charged to credit card No regularly scheduled payments. Balance is charged to the same credit card 31 days prior to departure. Deposit is nonrefundable.
Source: CreditCards.com research, March 2013
See related: 6 credit card problems that ruin vacations, Travel perk: Credit card emergency assistance

Updated: May 13, 2013



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