Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
I wanted to get a leg up on Christmas shopping this year. Money is tight, as always. I do have a credit card that I can charge with, but I’m also thinking about using the stores’ layaway plans. What do you think I should use? I value your advice. — Genevieve
No one wants to overspend and go deep into debt, but good intentions often go awry during this time of year. Therefore, I’m glad you’re thinking about the best way to use your cash and borrowing power now.
Whether you charge the items or take advantage of a department store’s “pay over time” plan, you can come out ahead. Here’s what you need to know about both ways to pay.
Layaway plans. Some retailers are offering consumers the ability to pick out the merchandise they want, leave the items at the store and then pay for them all in weekly, biweekly or monthly installments. There is a fee involved, but it’s usually low — around $5 or $10. When the bill is satisfied, you get to take it all home.
The positive aspects of layaway plans over credit cards include:
- You can avoid going into debt.
- The store won’t charge interest on your purchases.
- You can secure “it” items before they sell out.
- Storage! If you’re buying large items like TVs and sleds, you won’t have to find a hiding spot, preventing loved ones from accidentally stumbling upon them.
Drawbacks? Not all stores offer layaway, and those that do might only allow it on certain types of items, such as toys and electronics. Home essentials that you may want to give (or keep) could be exempt. Some stores charge cancellation fees if you change your mind, which can be a problem if money is as tight as you say. Also, you may buy the item before it goes on deep holiday discount and be stuck paying the full price.
Credit cards. There is nothing wrong with paying for holiday expenses with a credit card, as long as you don’t carry that debt deep into the new year. Let’s look at the advantages of using plastic over layaway.
- You can purchase the things you want and take them home for wrapping immediately.
- Almost all stores accept credit cards.
- Credit cards have built in consumer protections (for example, if the item you buy is missing pieces and the merchant won’t help, you can dispute the charge).
- If you have a rewards card, you can rack up points and even come out ahead financially (provided you pay the entire bill off in full when it is due).
Of course, credit cards can also let you spend too much. When that happens, the balance can stress out your budget even if you delete it within the desired payoff time frame. And if you don’t pay it down quickly, the finance fees will make everything you bought more expensive.
The best way to use plastic for holiday spending (OK, all spending) is to plan for expenses and micromanage the charges. Before swiping, always make certain you can afford to pay the entire cost within a few months or less. So if you drop $1,500 on those pre-January items, be sure to send $500 (plus a little more for finance fees) on a fixed basis so you can be in the clear by March.
You can also use a combination of both credit cards and layaway. Do whatever works and keeps you on your best financial behavior. Create a list for all that you want to buy, where you want to get the things, and which payment option you’ll use. Oh, and don’t forget about cash. There’s still time to save for at least a few of those must-haves.
Meet CreditCards.com’s reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.