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Perks, potential drawbacks of layaway payment

February 24, 2010 12:00:00 AM PST
Almost half of all Americans are using their credit cards less, and the older payment method of layaway is on the rise as more merchants offer extended payment plans. Consumer Specialist Ric Romero teamed up with Consumer Reports to show you how to save with layaway and what to look out for.

Consumer Reports has tested a lot of things over the years - TVs, plastic dishes and even men's socks. And now, Consumer Reports Shopsmart is taking a look at a blast from the past - layaway.

"Today you can buy iPods, concert tickets or even pay for your honeymoon on layaway. You put a bit of money down, pay for your purchase over time until it's paid off, and then you have your item or take your trip," said Jody Rohlena of Consumer Reports.

While stores like Sears, Kmart and Burlington Coat Factory have had layaway for years, now they offer layaway online. There's also e-layaway that allows you to pay for items from Home Depot, sports tickets or pet supplies over time. And with layaway travel, you can pay for your vacation with installment payments.

"A big advantage to layaway is that you don't have to pay interest like with a credit card, but there are drawbacks," said Rohlena.

Many plans charge a cancellation fee which can be as high as $150. Some even charge a service fee. And if the store files for bankruptcy, you lose your money.

"To shop smart when you do layaway, sign up for automatic billing. You're less likely to miss payments and lose your merchandise," advised Rohlena.

And if you're buying more than one item, be sure to bundle those into one order. That way, if the store charges a service fee, you only pay once.

Toys R Us is another big retailer that recently started offering a layaway program. It's called "big ticket layaway" and it's available for expensive items like children's furniture, bikes and dollhouses.