I know it is en vogue to bring back things from the past, but this is a trend I thought had gone forever: layaway. With tightening credit policies, and maxed out consumer debt, it seems layaway is making a comeback. Personally, I am not a big fan of layaway, ranking it somewhere between using a credit card and taking on a rent-to-own contract.
An Alternative to Layaway
In the Frugal household we have created our own sort of layaway plan. When we have our hearts set on a big-ticket item we relabel a “subaccount” at ING Direct and transfer a little money there from each paycheck. For instance, we recently needed to save up a couple hundred dollars for new tires. Rather than charging them, or financing them through the tire dealer, we gave a subaccount the nickname “Tires” and transferred $25 a paycheck (every two weeks) into this account. In just a couple months we had enough money to pay cash for new tires.
The account described above is often referred to as a sinking fund, where funds are “sunk” in regular intervals to pay for an item. The concept can be expanded to cover annual, or semi-annual, insurance premiums and other infrequent expenses. When you think about it, an escrow account at your mortgage is just a sinking fund where a little money is siphoned away from each payment and held to pay insurance premiums and tax bills.
Layaway is Just a Forced Savings Account, With Bad Terms
My main problem with layaway is that is really a forced savings account with fees and sometimes a nasty cancellation policy. Instead of agreeing to purchase an item by a certain date, and risk being charged if that date comes without full payment, why not just save up the money in the same increments over the same amount of time? That way, if something comes up and you cannot buy the item when the time comes you can easily back out of the purchase.
When I told my wife I was preparing this piece for Frugal Dad she shared a layaway nightmare she had as a young teenager. Guess jeans were all the rage, and while at the mall with a couple friends my wife put a pair on layaway along with an $8.00 “down payment” so the store would agree to hold the jeans. The idea was that she would later return with her mom and get the jeans. They never returned, and my wife was out $8.00. It was a painful experience, but it must have cured her. That was the last thing she ever put on layaway!