By Alexis Yancey, KERA News
http://stream.publicbroadcasting.net/production/mp3/kera/local-kera-872445.mp3
Dallas, TX –
As credit card companies tighten requirements for purchases, many consumers have seen their credit limits lowered and their interest rates soar. Some people with large amounts of debt have had their ability to buy cut off. In our Monday economy segment, Alexis Yancey reports on an alternative way to pay that's making a comeback.
Marilyn Delacruz, like many consumers, got into trouble using credit cards.
Delacruz: When I was a single mother I used to use my credit card a lot and I noticed I went into overdraft a lot. The reason why was I needed something for my kids but I decided not to use credit cards anymore.
Weary of credit card penalties, the mother from Pleasant Grove is thrilled and gratefull she can buy a computer for her son and daughter on layaway at Best Buy.
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Delacruz: It's easier for me because I have other bills to pay and I know I don't have enough money to pay for it in cash, you come and pay whatever you have little by little.
Layaway programs started fading away when it became easier for consumers to buy with credit cards. Banks made more money on interest rates. Retailers and customers liked the convenience. But the current economy is prompting stores to bring back layaway. Phil Messimer manages the Best Buy in Mesquite.
Messimer: They've raised the standards for how you can get credit so we needed another way to take care of our customers. People can put on layaway pretty much anything we have in the store. We can do them on appliances if we have them in stock. Layaway has picked up for the holidays, we usually do about three or four layaways a day now.
Jay Farley: As you look around the majority of the bags are going to contain children's clothes and children's toy items so people are using the layaway program to obtain necessities for their family as well as Christmas.
Jay Farley is Operations Manager for the Mesquite Sears store.
Farley: It came back later this year when the recession really started to dig in and they've extended it to a year round program now. This store is currently the number one layaway store in the nation for Sears.
You pay a non-refundable intiation fee and a down payment. Then you make layaway payments about every two weeks for a set length of time, usually one to three months depending on the store. Jenny Stewart of Consumer Credit Counseling Services says layaway is an effective teaching tool for spending and saving.
Stewart: The spending spree has come to an end and so we need to recognize that we need to be responsible as our money comes in, how should it go out. I like the concept of layaway because it has to put people in a position to plan for their spending.
But Stewart says be careful and know the terms of the layaway before you sign the agreement. Some stores require you to buy a certain amount before you can use layaway. In addition to the non-refundable layaway fee, other stores have cancellation penalties and a few may not refund a down payment if you don't meet the terms. Jenny Stewart.
Stewart: Yes, there are fees attached, but you have to compare that to what would it cost to have additional interest rates and credit card expenses when someone is not able to pay off the debt every month.
Back at Best Buy, Marilyn, who earns a living serving food in a Dallas school cafeteria, has three months to pay on her computer. But she doesn't plan to take that long. That's because she's not just buying in a laptop, she's investing in her children's future.
Delacruz: I was struggling with my kids and I want them to finish school to be better. And they can do better than we could. My son needs to finish his classes. He can do it online and that's why I'm getting him the laptop, because I want him to graduate.
It's important to note that Best Buy is testing layaway, so not all Best Buys offer layaway at this time. Some stores, like Sears, even offer layaways over the Internet, allowing you to choose an item, make payments online or in-store, and either have it picked up or shipped when payment is complete.
Learn about upcoming workshops on managing money and credit on the Calendar of KERA's Economy Web site: KERA.org/economy