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Layaway vs. Credit Card for Holiday Shopping

As we enter December, everyone is starting to gear up for holiday shopping. This is a time of year when it really pays to be a smart shopper since the average American spends $832.66 on holiday gifts! While research has shown that the best way to avoid overspending is to use cash, sometimes that’s not an option. Layaway programs and credit cards are alternative methods to pay for big purchases, but how do you decide which one is best? We’re here to help you figure out what’s the best choice for you, so that you can remain a smart shopper this holiday shopping season.
Layaway Pros
  • “Safe” way to make big purchases without using a credit card
    • Layaway is a great option for those who don’t want to or can’t use a credit card to make larger purchases. Some consumers have a tendency to dig themselves into a hole of debt when using a credit card and opting for layaway can eliminate that risk.
  • Nothing happens to your credit score if you miss a layaway payment
    • Layaway programs have scheduled payments that keep you on track to own your desired item.  However, if you are unable to make the payments, your credit score isn’t harmed, much unlike a defaulted credit card payment. Most stores will refund the money you have already paid for layaway, minus a storage fee.
  • Avoid accruing interest that comes with a credit card
    • Credit card balances can quickly accumulate hefty interest amounts than can take awhile to pay off.  Layaway programs don’t accrue interest – you simply make the payments towards owning the item.
Layaway Cons
  • You may not save money in the long run
    • Though you’re being a smart shopper and thinking ahead, you may end up missing out when that item goes on sale closer to the holidays and you could end up spending more money through layaway. Since some stores honor sale prices, be sure to familiarize yourself with their policies!
  • You don’t get to take the item home when you start paying for it
    • For those shoppers who desire the instant gratification of taking home their purchase, layaway may be frustrating and inconvenient. You must be sure to plan far enough ahead so that you have time to pick up or wrap your purchase before you need it!
Credit Card Pros
  • Generally the cheaper option compared to paying off layaway in the same amount of time
    • In most cases, using a credit card is cheaper to layaway if you were to pay off the balance in the same amount of time. However, each situation is different and depends on the size of payments.
  • Boost your credit score by paying off your balance
    • Paying your credit card bill on time is a way to give your credit an extra push. By using your credit card for holiday purchases and making your payments, you show creditors that you are reliable.
  • Take home your purchase when you buy it
    • Americans love being able to take home the item they found at the store home right when they found it and credit cards allow you to do that. This gives you enough time to transport, wrap or do whatever else you need to do with the item.
Credit Card Cons
  • Possibility of credit card interest and debt
    • A big reason consumers avoid using credit cards is because it is far too easy to pay the minimum balance and allow interest to pile up. It is best to use a credit card when you know you can pay off the balance before interest starts accumulating on your bill. Otherwise, it can take you a lot longer to pay off your purchase than if you had used layaway.
  • Defaulting on payments hurts your credit score
    • While making your credit card payments on time can boost your credit score, the opposite is also true. Missing payments can hurt how creditors view you and can lower your credit, making it difficult to make large purchases or open lines of credit in the future. 
Both options have their advantages and disadvantages, so it is important to carefully consider your situation when making holiday purchases.

Submitted by Renee