If you're old enough, the word layaway may conjure up some fond memories: you put a deposit on an item, like a bicycle, a stand mixer, a lawnmower, a winter coat, and then you come back a few weeks and payments later to take it home, paid in full. No high interest accrued, no debt worries, no problem.

In the 1980s, however, the rise of the credit card inspired a new age of instant gratification. Take my new item home without a wait? No contest. Charge it! As a result, layaway programs disappeared from most stores, until lately.

In recent years, with so many people in trouble after succumbing to the false sense of riches a credit card offers, layaway programs have started to make a comeback. If you tend to overspend, or if you want to make a purchase but also get a handle on your debt, it’s time to take a serious look at layaway.

And don’t worry, it’s not a loan shark scheme created to keep you chained up in interest payments for life. In fact, layaway a legitimate, tried and true method for paying without credit, even if you have bad credit.

How Layaway Works

Programs may differ from store to store, but generally you put about a 10% deposit on an item, settle on a payment schedule, and pay a nominal layaway fee (which is almost always less than what you’d pay in interest if you used a credit card). Then you make your payments regularly over your payment term, and once you’ve successfully paid off your item, it’s yours to take home.

Sounds pretty simple, doesn’t it? Well it is. But along with these advantages of layaway, there are also a few disadvantages to be aware of:

Advantages of Layaway Programs

• There are no interest charges.

• The cost of your item is spread over many payments, which makes big purchases more budget-friendly.

• No need for a credit card or a credit check. If you have bad credit or no credit, it doesn’t matter since the store is not taking a risk on you.

• You can usually set your own payment plan to suit your budget, including the frequency of payments, and length of time required to pay it all off.

• You can set items aside ahead of time, without worrying they’ll be out of stock later.- If a sale comes up on something you’ve got your eye on, you can reserve it through layaway even if you can’t afford to pay in full right now.

• If you miss a payment, it won’t affect your credit report. It just means it’ll take a little longer for you to pay everything in full. (See “missed payments” below.)

• Layaway is a great way to teach kids about money. A child can put away a toy or item on his or her own layaway plan, and save money through chores to make payments.

Disadvantages of Layaway Programs

• No instant gratification. (You have to work on your patience!)

• You’ll need to plan ahead and give yourself lots of lead-time when it comes to things like Christmas, birthdays, and weddings. (If you’re a last-minute shopper, you’ll have to change your ways!)

• If the store goes out of business, you may be out of luck. The best way to try and avoid this situation is to shop at well-established, reputable stores.

• It may actually be hard to find a layaway program at a store you usually shop at. Don’t hesitate to ask about it, and also put in a request directly with the manager. The more people asking for the service, the more likely a retailer will offer it.

• If you’re buying a bigger-ticket technology item like a TV or computer, you may opt for a longer term layaway plan of up to a year. Unfortunately, since technology moves so quickly, you may end up with an obsolete item by the time you pay it off, which may only be an issue if you’re one of those people who has to have the latest technology.

Other “Fine Print” Considerations

• If an item goes on sale after you have put it on layaway, you may be able to have your price adjusted. Keep an eye on those coupons as well! However, be sure to read the store’s policy on price adjustments. Some retailers put a limit on the number of adjustments permitted for layaway items.

• You need to be realistic about what you put on layaway. Whether it’s one big ticket item, or a few smaller things, can you really afford the payments? Should you really be buying these things? You can change your mind, but you may not get all your money back. (See “cancellation” below).

• Be sure to keep track of all the payments you’ve made, keep all your receipts, cancelled cheques, etc., in case there are disputes later.

• Missed Payments: Be sure to read the store’s layaway policy carefully when it comes to missed payments. They may forgive one or two, but too many missed payments and you may end up losing all your money, and the item.

• Cancellation: If you change your mind and don’t want something anymore, you can cancel your layaway. However, read the policy since some stores may charge a cancellation or restocking fee. Other stores may only give you store credit for the money you’ve already paid. In some cases it may be better to pay the item off in full and then return it later, rather than cancelling your order mid-way through. Make sure you do the math!

Layaway plans don’t usually work for things like services (e.g. gym memberships, home repairs, etc.) You’ll still need a available cash or a credit card for some purchases. Some financial advisors may tell you that if you have to put something on layaway (or a credit card for that matter), maybe you can’t really afford it in the first place. You should try to pay cash for everything if you want to keep your spending within your means.

If you must use a credit card…

If you do use a credit card and often carry a balance, call your bank and request a low interest card. We’re surprised at how many people don’t actually know about this option. All banks have them, but they don’t necessarily advertise them.

Low interest credit card rates range anywhere from 9-12%, which still isn’t great, but it’s better than 18%+. Be aware that you may have to give up on collecting reward points for a little while if you go with a no-frills low interest card, and some low-interest cards have a yearly fee (usually about $30). It’s a small price to pay to get yourself out of debt.

Bottom Line

Layaway is essentially the opposite of credit cards and if you’re trying to get a handle on your debt, it’s a great way to go.