Layaway used to be a very popular method of paying for items and sticking to a budget, especially when it came to Christmas shopping. In the 1990’s, however, layaway seemed to go the way of the cassette tape. Credit cards became the method du jour, despite their high interest rates.

Layaway is making a comeback, however. In fact, you might call it the Betty White of budgeting tools, since 73% of consumers surveyed by Sears Holding Company stated that they felt like layaway was a responsible budgeting option. Layaway at Kmart and Sears resulted in more than three million new customer relationships in 2008 and 2009. As a result, stores like Kmart and Sears are using the upcoming holiday season as the perfect opportunity to revamp layaway’s image.

“Layaway is back – in a big way,” said Susan Ehrlich, president of financial services, Sears Holdings. “This isn’t just a trend created by the recession. Rather, the survey revealed what we’ve believed for some time now – that layaway, a shopping concept that was embraced by Kmart more than 40 years ago, has emerged as a viable and relevant option for cost-conscious consumers. It’s a financial tool that can help families successfully manage their budgets and expenses.”

Kmart’s website boasts about the interest-free payment method with layaway. You pay a non-refundable $5 processing fee to set up the layaway plan, and then 10% of the purchase price as a down payment. Payments are due every two weeks, and the contract period is eight weeks. Sears has a similar eight week contract period, but they require a 20% down payment up front, although their processing fee is only $5. Twelve week contracts are available at both stores for items over $300. Both Kmart and Sears allow you to use layaway for online, as well as in-store purchases. And the Kmart website even has a tool to help you calculate what your payments will look like.

Layaway has several benefits. The first is that you don’t have to have good credit, and the stores won’t run a credit check on you before they will open a layaway contract. This is a great option for people who may be trying to recover from bad credit due to foreclosure, or credit card problems in the past. “Layaway is essentially an interest-free payment plan that allows shoppers to get the things they need and want,” says Salima Yala, Divisional Vice President of Financial Services for Sears Holding Company. “The process of using layaway as a smart financial tool is simple and convenient.”

That lack of interest is a huge advantage that layaway has over credit cards. Depending on your credit history and the credit card company you’re with, interest rates can run anywhere from 14% – 27%. This isn’t a problem if you’re the type of person who routinely pays off their credit card balance each month. But we all know that most Americans don’t have that type of fiscal responsibility. If they did, we wouldn’t be in the financial mess that we’re in right now.

The downside to layaway is that if you miss a payment, you forfeit your contract. However, there is a seven day grace period for missed payments, which is pretty lenient compared to credit card companies, who are looking to sucker punch you if you’re even five minutes late with a payment.

The other disadvantage is that layaway may not be available for shoppers who are hoping to cash in on Black Friday sale prices, because those deep price reductions may be included in “specialty item” exclusions.  So if you’re planning to stand in line on Black Friday, you may want to phone ahead and ask if those prices will be available for layaway options.  Kmart and Sears will allow customers to use layaway for Black Friday deals, but layaway payments must be completed by December 4th in order to qualify.

What’s your opinion of layaway? Do you see yourself using payment plans as a way to stay within your holiday spending budget? Are you a “cash-only” type of holiday shopper? Or will you stick to credit cards to make your holiday purchases? I’d love to get your take on the subject.