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Retailers revive layaway to counter credit crunch

NEW YORK (11/24/08)--This holiday season, national retailers, regional chains and stores have upped advertising for their layaway options, and many consumers are beginning to turn to this once-considered-obsolete payment method (MSNBC.com Nov. 10). The widespread availability of credit cards is what put layaway to rest years ago, according to MarketWatch.com (Oct. 22). But with today’s tightened credit limits, holiday shoppers are increasingly wary of using plastic and are turning to other options such as layaway. Until recently, Kmart Corp. was the only major retailer regularly using layaway, but TJ Maxx Corp., Marshalls Inc., and Burlington Coat Factory have now followed suit. How does layaway work? A retailer holds an item for a customer while she pays off the purchase price in installments, plus a small service fee, before taking it home. For instance, Kmart requires a $5 service fee and a $10 refundable cancellation fee upfront, or 10% of the item's cost, whichever is greater. If a customer fails to follow through, the transaction is cancelled and the customer receives a refund, less the $15. If you put these purchases on credit and don’t pay off your bill right away, your interest could be more than the layaway fee. To buy from smaller retailers, visit eLayaway.com, a website that organizes layaway services for more than 1,000 retailers nationwide. Representatives said traffic on the site almost doubled in the past year. The site charges a fee of 1.9% of the sale price. To help you boost your credit score, eLayaway.com files a report with Fair Isaac Corp. every time you pay an installment on time. Be advised: The only payment option on eLayaway.com is a direct debit from your share draft/check account, so make sure you have funds available to cover the cost of installments. The company charges a $5 fee after the first unsuccessful payment and a $25 cancellation fee after more than one failed attempt. For more information, read “Tough Times Series: Steer Clear of Credit Counseling Bad Guys” in Home & Family Finance Resource Center.