Lay credit-card debt away for the holidays

By HELEN MALANI
shopzilla.com
Tuesday, September 18, 2007

The calendar doesn't lie. We're less than 90 days away from the kickoff to the holiday-shopping season. I know -- hard to believe, but it's true.

Instead of running yourself into the red with credit-card debt again this year, dust off an archaic concept to help you stay in the black. It's called layaway. Remember that word? It's the old-fashioned method of completely paying something off before you are allowed to take it home. The most amazing part? No debt.

But there's a modern-day twist on the layaway of yesteryear: It's happening online. Few of you may have memories like mine: taking a check or -- gasp -- cash into a store each month, ogling the prize on the layaway shelf that is longing to come home with me, and leaving the store a step closer to becoming a proud owner.

Layaway teaches what I consider to be a shopping virtue: delayed gratification. What's that, you ask? It's something quite alien to current generations. So for you younger readers, allow me to explain the concept. You shop online. You pick what you want. You arrange a monthly payment plan for three, six or 12 months (it can vary depending upon whom you do business with). Once your item is paid for, it's shipped to you, and you never go into credit-card debt. You will have no post-purchase payments, interest or finance charges.

One of my favorite layaway sites is www.eLayaway.com. I like it for its simplicity. It charges a one-time fee of 1.9 percent of your product's purchase price. I'll do that math for you in a minute, but I want you to think about 1.9 percent compared to your most reasonable credit-card rates. Are you thinking about it? OK, time for the math.

Let's say you want to buy a 32-inch LCD TV for $800. eLayaway's fee of 1.9 percent on that TV comes to about $16 (sales tax is included in the calculation). You'd pay a total of $816 whether you pay it off in three months or a year. You never pay a cent more.

Now let's look at buying that same TV on credit. According to Consumer Credit Counseling Service, the average credit card holder pays a steep 18 percent APR. So even if you paid on time every month, you'd be paying $40 (estimated annual fee) instead of forking over $16 for the eLayaway fee. So the credit-card option is more expensive by $24. While that's not outrageous, it's still $24! I don't know too many people who would appreciate shelling out $24 without a compelling reason.

Now take a look at a more realistic scenario. Same TV, same credit card, only this time, you pay the monthly minimum required by your credit card, which is what a substantial number of credit-card holders do. The $800 TV that cost $816 on eLayaway and $840 on a credit card increases to a stunning $2,000, and you'll be making payments for more than six years. Folks, that's just wrong on every level.

So what scenario fits your life? Waiting a few months to take it home or paying for it over several years? Paying a small fee or paying 150 percent more than the darn thing is worth?

Since we're weeks away from the start of holiday shopping, you've got time to plan ahead and avoid a holiday-debt hangover.

eLayaway.com isn't the only player in the online-layaway game. Lay-away.com doesn't charge any fees. It makes commissions off sales, so layaway charges are built into product pricing. Both services offer plenty of product selection, but there's so much more. You can layaway everything from vacations to dental work. I think I even spotted cosmetic surgery in there, too. Not that I'm looking.

Helen Malani is the chief shopping expert for Shopzilla.com, an E.W. Scripps company. Got something to say about shopping? E-mail askhelen(at)shopzilla.com. For more stories visit scrippsnews.com.