This past week I read an article in the Wall Street Journal that discussed the comeback of layaway. I was even more interested about this topic after I watched commercials advertising the Layaway Program at Kmart. So I decided to start reading about it more to try to figure out who could benefit under this payment plan. Initially I thought there could be something positive about layaway and even came up with three arguments to make my case for it. That was until I started looking into the first argument.

At first, I thought that the cost of putting items on layaway was cheap. I found online the terms and conditions for Kmart’s layaway program. Their $5 Service Fee seems reasonable and cheap enough. But then I pulled out my calculator to determine the effective interest rate this fee posed. For example if you put on layaway a $100 value item, you are effectively paying 5% in interest to do that. Since the layaway period is 8 weeks, that 5% turns into a 32.5% APR you are paying on this purchase. That’s almost a loan shark.

In absolute terms $5 doesn’t seem like very much does it? But look how much it is. Skip layaway and start your own “Saveaway” program. Go ahead, hit the stores with your holiday shopping list and make a total of how much everything you would like to get will cost. Then divide that total by the number of weeks that are still left until the holidays. Put that money aside every week. You can either accumulate it in an envelope or head to the store and buy a gift card if you think you may be tempted to spend the money. When the holidays are almost here pull out your cash or gift cards and go shopping without any second thoughts of the interest charges you could have been paying.

Don’t be fooled by these “easy payment” programs. Once you get through the fine print you can be surprised by how much worse than even using a credit card they are.