Here’s a New Year’s resolution that can pay you back handsomely: Eliminate costly purchases that add little value to your life. Here are eight products or services that for most people are a waste of money. They’re not scams. They’re just bad deals.
Cell phone insurance
For most of us, our cell phone is a lifeline that keeps us connected to the world. So it might seem logical to buy insurance to cover loss or damage. But consumer experts recommend against it.
These plans have high deductibles – as much as $125 for a smart phone. File a claim and the third-party companies that run these programs can send you a refurbished phone rather than a new one. They can even substitute a different model.
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Mike Gikas, senior electronics editor at Consumer Reports, says it’s often cheaper to repair the phone or buy a used phone, rather than pay the deductible. Or consider this: Keep your old phone. That way, if your new one breaks, you can use it until your contract ends.
Buying checks from the bank
Sure, it’s easy to order checks from your bank. But unless you get free checks you can save a lot by ordering from an outside printing company.
“Not only are they cheaper; these are often fancy checks,” says Edgar Dworsky, founder of ConsumerWorld.org. “You see the ads in the Sunday circulars every week. Many of these companies also offer coupon codes to bring down the price even more.”
Dworsky’s bank in Massachusetts charges $44.50 for two boxes of plain checks (400 checks). Right now, as a new customer, he can get two boxes of fancy checks (250 total) from Checks Unlimited for $13.88. That’s fewer checks, but the price per check is nearly 50 percent less.
Prepaid debit cards
Expect to see banks and credit card companies step up their marketing of these highly profitable debit cards this year. They’re billed as a simple way to control spending and avoid high interest rates.
But here’s the rub. Prepaid cards have all sorts of fees. Right off the bat, there’s a setup or activation fee that can run around $9.95. There may also be a monthly fee and charges to reload money, talk to customer service or get a paper statement.
And there's one more major drawback. This is a debit card not a credit card, so using it does not build a credit history.
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Credit card insurance
Here’s the pitch: Make sure your family isn’t saddled with huge credit cards bills if you lose your job or are unable to work. Most of these policies will make the minimum payments for a certain amount of time. There are also premium policies that promise to pay off the balance in full if you die or are permanently disabled.
Expect to pay from 25 cents to $1.35 a month for each $100 of your balance. For a $3,000 balance that’s as much as $486 a year.
“In general, it’s better if you can take the money you’d pay for the insurance and apply it toward the balance,” says John Ulzheimer, president of consumer education at SmartCredit.com. “That way you’d actually pay off the balance quicker and you won’t have to worry about any sort of insurance.”
Medical bills for cancer treatment can be monumental. But insurance experts say it doesn’t make sense to buy a policy to cover a specific disease. You want comprehensive coverage that helps pay for any medical expenses you have.
The editors at Consumer Reports Money Advisor note that some cancer policies “exclude certain types of cancer, or they might not pay at all unless you are hospitalized.” But worse yet, it could negate the cancer coverage you already have with your health plan.
As the American Cancer Society points out on its website, the new health care reform law (which took effect in September) helps people with cancer and their families. Health insurance companies can no longer deny coverage to children with a pre-existing condition (this benefit extends to adults in 2014) and they can no longer revoke coverage if you get sick. Plus, there is no longer a lifetime cap on benefits.
It’s the check in the mail you never expected and never requested. Banks send their customers these so-called “convenience checks” because they are enormously profitable. But this is no ordinary check. Use it and you’re agreeing to a short-term loan.
“There is no grace period,” notes Bruce McClary with the credit counseling agency Clearpoint Credit Counseling Solutions. “As soon as that check is cashed and processed the interest kicks in.”
And that interest rate is comparable to a cash advance on a credit card – 18 to 24 percent. If you are desperate for cash, this is not the way to go. Try to find some other option.
Getting cash from another’s bank ATM
It’s hard to find a place where there isn’t an ATM these days. But unless that cash machine is owned by your bank or part of its ATM network, you’re likely to get clobbered twice for making a withdrawal. You’ll be hit with a fee by the bank that owns that cash machine and your bank will charge you for going out of network.
According to a recent survey by bankrate.com, three out of four banks now charge their customers to use another bank’s ATM. That fee now averages $1.41. The survey shows virtually all banks (99.1 percent) charge non-customers to use their ATM. That fee now averages $2.33 nationwide.
Caution: ATMs that are not owned by a bank (the kind you might find at a convenience store, bar or casino) tend to have even higher fees.
“You can completely avoid these exorbitant fees by planning your cash withdrawals,” advises Bankrate’s senior financial analyst Greg McBride. “Keep enough cash in your pocket so you won't have to use another bank's ATM.”
In a pinch, go to a drug store or grocery store, buy a small item with a debit card and get some cash back.
Buy an appliance or electronic device of any kind and you'll be encouraged to buy an extended warranty to pay for potentially expensive repairs if the product breaks. But these service contracts are usually a bad deal.
Consumer Reportssays based on reader surveys, products seldom break within the extended-warranty window. And if they do, the repairs tend to cost about the same as that extra warranty. So it’s worth taking your chances.
The magazine says there is one time you may want to consider purchasing that extra peace of mind: if you buy a laptop, netbook or tablet computer that you plan to use a lot on the go.
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