After the financial crisis of 2008, many Americans found that their finances were terribly overextended. They were mired in credit card debt, and, following a job loss or a pay cut, had no way to pay it down. Many of these Americans turned to bankruptcy as a way to emerge from under their heavy debt loads.
Bankruptcy is a process by which most of a consumer's outstanding debts can be discharged, either by liquidating one's assets (Chapter 7) or by adhering to a strict repayment plan (Chapter 11). Both methods take time and effort; after bankruptcies were completed, many Americans were very care not to allow that situation to recur.
So, Americans are now more debt-averse than they were in the past. This means fewer Americans carry a balance on their credit cards. They are wary of falling back into the debt trap that many experienced several years ago.
Perhaps in response to this trend, many major retailers have seen an enormous upswing in the total number of layaway purchases that consumers have been making. Layaway is a process by which a consumer reserves a product which is then held safely in the retail center's layaway storage. The consumer then makes a series of payments until the product is fully paid for. He or she then receives the product.
Many consumers are turning to layaway this holiday season because they see it as a safer alternative to credit cards. Layaway charges few fees, although experts warn that if a person wishes to cancel their layaway, it can cost $10 to get one's money back - a significant amount that could be higher than many interest rates.
The increase in layaway may be a step up from digging oneself deeper into credit card debt, but it also suggests that many Americans are still living near the financial edge - that is, unable to pay for items immediately and instead, relying on installment plans. These consumers should be very careful about budgeting their money to ensure that they don't fall heavily into debt.
Source: NBC News Business, "Layaway is last Christmas hope for consumers burned by credit cards" Ben Popken, Nov. 27, 2013