Back on January 9, I told "Mad Money" viewers that retail stocks were in bad shape. I said that stocks like Coach (Stock Quote: COH) and J. Crew (Stock Quote: JCG) weren’t done sliding south, and that the holiday shopping season would have retailers filling in their balance sheets with red ink rather than black.

But after reading about the re-emergence of store layaway programs, you have to wonder about retail stocks. There are two sides of the story. One, if people are having to turn to layaway programs, where money is put down up front and on paid on a regular basis until there’s enough to cover the purchase price, then the economy might be in worse shape than we thought, if that’s possible.  On the other hand, since stores like K-Mart (Stock Quote: SHLD), Sears, Marshalls and TJ Maxx (Stock Quote: TJX)  have begun touting layaway programs, it could turn out to be a tidy profit center from retailers. In fact, Sears Holdings just reported its first good Christmas in years, in part because of customer demand for layaway services.

Usually, retailers will charge a small “storage fee” – around $5 - to hold the item for a customer, along with a cancellation fee, and a returned check fee, but they also normally don’t charge any interest on the purchase.

Plus, we’re starting to see the emergence of online layaway specialists, like and, where you create accounts online. After you’ve made enough payments to cover the bill, the layaway site, working with retailers, ships the product to you. The online layaway vendor takes a cut off the top.  That sector is heating up fast—according to eLayaway, transactions are up 1,400% since October, 2007.

As a business model, I’m not a big fan of layaways. They’re pricey to manage for retailers and they’re not much of a profit center, accounting for only a small percentage of a retailer’s revenues (numbers are hard to come by, but Burlington Coat Factory says about 5% of its sales last August came from layaway purchases).  Despite the problems in the credit card sector, credit remains the preferred payment method for retailers, and few stores want to discourage consumers from yanking their Visa cards out of their pocketbooks.  Trust me, immediate gratification ain’t dead yet, if ever.

But for consumers, layaway programs have merit. For one, they encourage savings, which is always a plus in my book. I still remember John Travolta’s character buying one of those skintight disco shirts on layaway in Saturday Night Fever. Plus, layaway gives you incentive to avoid using credit cards and that’s going to reduce debt. That’s another plus.

But to get the maximum benefit from layaway programs, you should know the rules, so you don’t get burnt. Here are a few pointers:

Read the fine print: Don’t plunk cash down at the register unless you know the store’s layaway policy. Some retailers may penalize you if you miss a payment or neglect to make the full purchase by the agreed upon deadline. So check for any time limits on your purchase, whether there is a cancellation fee (and how much it is), if there are any minimum payments, and under what conditions your layaway deal can be cancelled.

Check the refund clause: Under layaway programs, refunds may offer an unfamiliar twist. For example, if you want to return the item, some stores may nick you with a service fee, or only offer a store credit instead of cash. So cover your tracks beforehand and get the refund policy in writing.

Know your deadline: Yeah, this goes with my “fine print” tip above, but your best chances of getting a raw deal comes if you don’t pay up within the agreed upon deadlines. Most retailers, like K-Mart or Burlington Coat Factory, say their customers have to complete their purchase within 30 days. Some go longer. At the Baby Depot, shoppers have 90 days. If you fail to meet the deadline, a retailer may keep any money accrued, although more likely you’ll pay a cancellation fee and get a store credit for any money paid toward your layaway item. Plus, the retailer likely won’t report your “default” to any credit bureau.

Go online for really big purchases: These days, you can get decent layaway deals online for non-retail events like travel, jewelry, tickets to sporting events, or even surgery. If you know you’re headed to Bali in six months, or for certain medical procedures like Lasik or plastic surgery in nine months, use a web site like or eLayaway to handle your payment plan. Your account can be reviewed online and payments can easily be made via direct deduction or direct deposit.  eLayaway even allows you up to 13 months to complete your purchase. Think of it as a Christmas Club on steroids.

Better yet, get a savings account: A smarter way to handle big purchases, if you have the discipline, is to open a savings account, where you pay no fees, and even earn a bit of interest on your savings. When you have enough cash in your savings account to pay for your purchase, all you have to do is pull the trigger. No cancellation fees and no storage fees. Of course, this strategy only works if you can resist the urge to raid your account for other purposes.  Check for interest rates on money markets, CD’s, or savings accounts.

Like I said, the jury is still out on layaway programs as a business model for retailers. But for consumers, it’s a decent way to hone your savings skills and still get the product or service you want.

If you know what you’re doing.

—Brian O’Connell contributed to this article.