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Stores make layaway cheaper, but dangers lurk

This year stores are making it easier and cheaper to call "dibbs" on your holiday shopping list without having to pay the full price up front, waiving opening fees and, in some cases, getting rid of the need to put any money down at all.

But experts caution that making it easier to pledge to buy things you can't afford right now could be "disastrous" for the financially irresponsible.

Layaway ads
John Brecher | NBC News

Unlike cash, there can be fees. And unlike credit, you don't get your items when you walk out the store door. Instead, with layaway, shoppers get locked in today to get goods tomorrow, for payment tomorrow.

The heyday for layaway was the Great Depression. With the explosion of credit cards it had largely disappeared from stores until the Great Recession starting in 2008. After the credit and job market tightened, retailers have brought back layaway or expanded existing programs.

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Layaway usually lets shoppers put just $10 or 10 percent down to save a cart of goodies behind the counter. After making a series of regular payments over several weeks, they can retrieve their basket. If they change their mind and need their money back, or they don't make payments frequently enough, there's a small cancellation fee. For consumers without the cash or credit to make Christmas happen, layaway is their last hope.

With Americans carrying $28 billion on their credit cards, more than they have in 6 years, several retailers have announced they were easing up on rules and doing away with some costs. In a cheeky "not a Christmas commercial," Kmart announced "no money down layaway" through September 20th. Toys R Us is again waiving its $5 service fee to start a layaway plan. Wal-Mart has also waived its initiation fee, along with increasing the numbers of toys, and adding new eligible categories, like furniture, infant toys and car seats.

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In another sign of layaway's expanding appeal and opportunity for retailers, this year Toys R Us announced it launched an online layaway program.

"As the company strives to make it easy for customers to find and buy what they're looking for, online layaway not only provides access to a wider assortment of products, but is also an exceptional shopping convenience for those who want to make a series of payments over time, but may not be able to get to a local store to create a layaway order and make regular payments," said Toys R Us spokeswoman Katie Regner.

At each of the three retailers there is a $10 cancellation fee. At Wal-Mart, the individual items must be $15 or more each, and the total amount of purchases must add up to over $50. Neither Kmart nor Toys R Us require minimums.

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While ditching the fees is easier on consumers' pocketbooks, removing the barriers to entry can make it easier for shoppers to stock up carts full of items they may not be able to pay for.

"'No money down' layaway plans could be disastrous for those who are not financially responsible," said CNBC's personal finance correspondent Sharon Epperson. "Spend what you can afford."

Experts caution that even without fees, layaway can still end up being worse than cash.

"These changes are definitely a step in the right direction from the programs offered as a 'debt alternative' a few years ago, but the cancellation fees and the lack of clear value are still a problem," said Louis Hyman, an associate professor at Cornell University.

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He pointed out that for someone on minimum wage, the $10 fee can represent more than an hour's wages.

"If customers saved their money, they could still buy the gift in a month or two, and if they deposited that money at a bank, they would get some interest," he said.

Retailers defend the practice as a sensible alternative to swiping plastic.

"Layaway programs provide consumers with a responsible, low- or no-cost option for those who are either unable or unwilling to access credit," said Brian Dodge, a Retail Industry Leaders Association spokesman.

By Ben Popken, TODAY.com/money.
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