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How to Create Your Own Extended Warranty

by Flexo on October 15, 2009

in Consumer

In my article the other day about the deal I got on a new computer despite my immediate need, I neglected to mention something important: I refused the extended warranty that the salesperson offered numerous times. Any extended warranty is almost always a bad deal.

When I was a teenager, I had a short-lived job at a ubiquitous electronics store; let’s call it “Transistor Hut.” This was the only job in retail I ever had, and I can’t say I was a fan. Our bonuses were determined by our success in selling the “TSP,” an extended warranty. Let’s say that stands for the “Candy Service Plan (with a T),” and I don’t know whether this is still in existence.

The price of the TSP depended on the price of the item, and TSPs were available for almost every product. If you buy a $19.99 pair of headphones, you could spend another $9.99 for unlimited replacement, no questions asked (other than your phone number). If you buy a $299.99 DVD player, $79.99 (or so, keep in mind this was fifteen years ago) would allow you to bring the broken device into the store, have them ship it to a repair facility, and fix or replace it. That’s a process that would likely take several weeks.

The TSPs and any other store’s extended warranties are pushed hard by salespeople because they are often rewarded for them, and they are rewarded because they are very profitable for the store. Most people who buy the warranty will not use it, so the funds become significant income for the company.

Most credit card companies automatically double the manufacturer’s warranty on products purchased with the card for up to one additional year, so that automatic, free protection is often more than enough. Check your credit card’s terms to see if this is available to you. I knew it was available to me on my American Express Blue Cash for Business Card when I purchased the new desktop computer for Consumerism Commentary’s multimedia production.

Perhaps a smarter way to deal with the possibility of broken items — besides not buying anything — is to self-insure. Rather than spending an extra $50, $300, or $2,000 for an extended warranty depending on the product, put that amount into a new savings account designated for your own personal warranty extension. Do the same for all the products you buy for which a salesperson attempts to sell you the extended warranty. What you have created is a pooled funding source for repairs. It is unlikely that all of your products will break or stop functioning, so you can withdraw from this fund to pay for repairs for the one item that fails.

With this strategy, you keep all your money if nothing goes wrong, and if the money is sitting in a high-yield savings account, it’s working for you rather than lining the pockets of major retail chains.

Here is the step-by-step process.

Step 1. When you purchase an item, make note of the cost of the extended warranty. Don’t buy it.

Step 2. Transfer this amount to a special savings account that you will not touch until one of your “protected” items needs to be repaired. ING Direct lets you create sub-accounts, one of which you can name “My Extended Warranties” or “Warranty Fund.” Don’t create a sub-account for each item. One for all of your items will do. Thus, the “Warranty Fund” is pooled.

Step 3. Repeat steps 1 and 2 using the same Warranty Fund you already created for all products you buy that might break or are associated with an extended warranty. This will build up a sizable Warranty Fund in your own name at your own bank earning interest for you.

Step 4. When one of your self-insured products breaks or otherwise needs repairs, dip into your Warranty Fund. Try to avoid using your Emergency Fund unless the Warranty Fund doesn’t cover the full expense and the product must be fixed or replaced.

The strength here is that you are pooling your own funds. This is what the retailers do to ensure warranties bring significant profits to the company. Just like not every customer will take advantage of their purchased extended warranty, not every product you self-insure will break unless you are extremely unlucky or extremely careless. In addition, the best benefit of self-insuring is that you will never have to argue with a store representative about whether certain type of damage is “covered.”

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Always Try Bargaining: Here’s How it Worked for Me

by Flexo on October 12, 2009

in Consumer

Tom Dziubek, the producer of the Consumerism Commentary Podcast, and I have been having some difficulties with the Acer Aspire desktop I purchased earlier this year. I believe the problem can be fixed, but it will take some time. The problems have unfortunately affected our recording and interview schedule, so when an interview on Friday was cut short due to yet another glitch and more interviews were scheduled for today that were already postponed due to technical difficulties, I wanted to resolve the problem this weekend.

At this moment, it is somewhat difficult to get a powerful desktop computer on short notice. Retail stores are gearing up for the release of Windows 7 and manufacturers aren’t providing the stores with much. The belief here is that consumers would rather wait for Windows 7 to be installed at the factory rather than buy a computer whose operating system will be out of date within weeks, even if it includes a free upgrade.

I spotted one major regional chain electronics store that not only had something better than eMachines, it had the exact desktop model that I probably would have purchased online, with a few modifications, if I had more time. Most of the computer’s specifications were excellent, but the only drawbacks were a 5400 rpm hard drive — too slow for audio recording — and an integrated graphics chip. The graphics chip was probably fine for what we needed but I prefer discrete graphics.

The salesperson and I spoke for a long time, and I eventually got a discount on the purchase — a larger discount than I asked for. Here is how I won this battle of money.

1. I was very knowledgeable about what I wanted. I have been researching the best desktops currently on the model for the past few weeks, ever since the first sign of problems with the Acer Aspire, even though I believed and still believe the problem can be fixed. I knew exactly what I wanted and the price range I wanted to pay for the features I wanted.

The salesperson knew I was knowledgeable because I discussed the system in detail with him and explained my other options. I could tell he wasn’t as technically inclined as I am so I didn’t try to show off; I kept the conversation on his level but I was able to express that I had done my research.

2. I pointed out the flaws. It is true this machine had the two drawbacks I mentioned above. I made sure the salesperson was aware of my observation that these factors were detrimental to my choice and might hold me back from buying.

3. I asked for a discount. On the basis of the machine not matching my expectations exactly, and knowing that a 10% discount is common in retail electronics, I asked for 15% off. The salesperson explained that they cannot offer discounts on computer systems, but they could offer me a rebate if I purchased a printer or possibly some other accessories. I considered this; I didn’t need a printer, but if I could get a good discount on a replacement hard drive or graphics card, I might take that option.

The particular store I visited does not sell these types of computer components, so I wasn’t going to find something I needed. The salesperson did work very hard as we thought about different options that might satisfy me.

4. I was patient. When we couldn’t find a good route for a discount other than, in my mind, the computer itself, the salesperson went back to his manager. Still, the word was that they could not and would not offer a discount off the price of the desktop. We looked online, the salesperson on the store computer and me on my BlackBerry, to try to find other stores offering the system for less.

The store’s system of price matching is designed to wear the customer down. The salesperson has sixteen competitors’ websites bookmarked in Internet Explorer, and the process calls for searching for the product on each website in order to find a store with the product in stock and for sale at a lower price.

As I mentioned above, this is a very bad time for buying a computer with stores keeping not much in stock, so I knew this search would be fruitless.

On my BlackBerry, I did find a better price on NewEgg.com, but as expected, the store would not match an online-only price. The price at NewEgg was $30 better than the price in the store, which would have been a discount of less than 5%.

5. I made my final offer. After about thirty minutes in the store, we still weren’t going anywhere. The sales manager wasn’t ready to budge, and I wasn’t going to pay full price yet, even though I knew I needed a new computer by the end of the weekend. I didn’t let the salesperson know that I needed the computer immediately. In his mind, I could just buy the computer online. I told the salesperson that unless they can give me $30 off, that is exactly what I would do.

6. And then I walked out the door. But I didn’t get very far. As I was walking towards the door, I could see the salesperson and the manager in a frantic discussion, and as I stepped outside, I was called back into the store. There were going to make a deal on the desktop.

Patience still played a key role. I waited for what was probably another twenty minutes as the salesperson was in the back of the store, bringing the computer out. There were obviously some more problems because he came out twice without a computer and spoke to the sales manager.

Eventually the salesperson brought out the computer. The box had been opened, but the machine had never been used. It was not a display model or a customer return; the box had been opened because another customer’s keyboard was defective. They took the working keyboard from this computer and gave it to that customer, so mine was without a keyboard. They gave me the working keyboard from the display model and knocked $80 off the price.

That was more than my final offer, so I accepted. My discount in total was more than 10%. I spent more time in the store than I had originally planned but I got what I wanted for a price that was better than I thought I could have received. Even considering the replacement hard drive and the graphics card I purchased later, I talked my way into a great deal.

In the end, I got what I wanted, and so did the salesperson. Everyone wins.

I am not a very persuasive or aggressive person, so it’s a bit against my nature to work so hard just to save $85.59 including tax. I definitely think it was worthwhile. I always suggest at least trying to bargain, even when faced with resistance.

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Friday Discussion: The Need for and Cost of Health Care Reform

by Flexo on October 9, 2009

in Health

I visit a doctor once a year at the most, and I hardly require prescription medicine. The cost of my health insurance premium is about $800 this year for my HMO plan. My employer pays a larger percentage of the total premium, but the prices increase each year by a percentage much higher than inflation. A similar HMO plan, if I were to quit my job and buy individual health insurance in New Jersey, I would pay more than $800 a month, though there are less expensive options.

I’m lucky I don’t have any dependents.

The more individuals in the world with access to good and affordable heath care, the healthier the world will be in general, so I am in favor in reform that brings better care to more people. While reduced costs for me would be nice, that would be just an ancillary — and selfish — benefit. Will any of the various sets of proposed legislation succeed? I don’t know anyone who can answer that question with any sort of definitive answer. Health care is a monster, a complicated system with many moving parts that won’t be fixed right away.

The Congressional Budget Office released their cost estimates for the version of the legislation that is up for a vote within the Senate Finance Committee, and the numbers look better than expected: The bill would could $829 billion over ten years and actually reduce the budget deficit by $81 billion over the same time period. This bill doesn’t include a government-run plan, but it also leaves more people uninsured than some would like.

This legislation has a long way to go. The version of health care reform offered by the Senate Finance Committee needs to be combined with the version being considered by the Senate Health Committee. The Senate then needs to vote on and pass a bill. The House of Representatives also needs to vote on and pass its version of the health reform bill (H.R. 3200). Eventually the bills that pass both the House and the Senate need to be combined, voted on, passed and presented to the President.

None of this will happen without more changes and compromises, and even then it may not gain the votes needed to succeed.

Please share your thoughts and join the discussion. What issues should health reform address? What are your experiences with health care?

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Podcast 23: Haggling and Negotiating From Hostage Crisis to the Grocery Game

by Flexo on September 27, 2009

in Podcast

Our theme for today’s podcast is haggling and negotiating. The first guest in today’s Consumerism Commentary Podcast is Herb Cohen, author of You Can Negotiate Anything and adviser to Presidents Jimmy Carter and Ronald Reagan. Herb speaks about the experiences that led to his work in high profile negotiations and offers tips for everyday haggling based on these experiences.

Also appearing in today’s Podcast is Teri Gault, author of Shop Smart, Save More and creator of The Grocery Game. Teri Gault proved listeners with specific advice for negotiating in retail stores and finding the best coupons online.

 

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Flexo
[00:51] Interview with Herb Cohen
– [01:27] Herb Cohen’s history as a negotiator
– [04:46] Herb’s work as an adviser to Presidents Carter and Reagan
– [12:33] Understanding the needs of both parties
– [20:30] The right mentality for haggling
[23:31] Interview with Teri Gault
– [23:45] The Grocery Game
– [24:07] Negotiating with store employees
– [25:14] Using leverage
– [28:40] Uncommon places for negotiation
– [31:48] Haggling with professionals
– [32:58] Teri’s favorite haggling story
– [34:29] Finding coupons online
[36:54] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

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10 Tips for Avoiding Overdraft Fees

by Flexo on August 31, 2009

in Banking

As banks search for methods of increasing profits, increasing fees is a popular option. In the last year, overdraft fees have been the targets of increases designed to help banks boost revenue. According to recent research, banks project earning $38.5 billion from overdraft fees alone in 2009. Ninety percent of these fees come from only ten percent of customers, so it would be fair to say that it is more likely to be a serial offender than a one-time offender.

You may find that it has been more difficult for those one-time offenders to talk their way to a reversal of a fee through customer service. In times like these, when the banks want to protect their money as much as possible, it makes sense for consumers to avoid overdraft fees in the first place.

If you follow these suggestions, there should be no reason for you to be charged an overdraft fee unless you make a mistake.

1. Balance your checkbook. There is a disconnect between the checking account balance according to the bank and how much money you have to work with. If you have a traditional personal checking account, the bank doesn’t know when you write a check. It’s your responsibility to know how much money you have available at any one time. The best way to do this is to keep a register. Start with your opening balance, and subtract from it every time you write a check and add to it every time you make a deposit.

2. Don’t forget about your debit card. It gets difficult to balance your checkbook if you also use a debit card to get cash or to pay for purchases. When you sit down at your desk to write checks to pay your bills, all of your financial information is in front of you and you can easily enter the check amount in your register. But when you use a linked debit or ATM card, you need to hold onto your receipts so you can enter the transaction into your checkbook at a later time. If you remember.

3. Access your checking account online. Online banking is one of the greatest benefits of the internet. Rather than waiting for your monthly statement in the mail, you can log onto your bank’s website and check your recent transactions at any time. If nothing else, checking the bank’s records for your account more than once a month helps you become familiar with the transactions that flow through your account and how low you like to keep your balance.

4. Keep your balance well above the minimum. Some checking accounts charge a fee if your balance dips below a certain minimum, but almost all will charge a fee if that minimum is $0. Give yourself a buffer. If you withdraw an average of $2,000 each month for your mortgage and other bills, don’t let your bank account float below $2,000. This way, you always have a month’s worth of expenses ready to protect you from $0. Since checking accounts often offer lower interest rates than savings accounts, particularly high-yield savings accounts, you will be giving up a small amount of interest income, but the protection might be worthwhile.

5. Link your checking account to a savings account. Many banks offer the option of linking a checking account to a savings account. In the even that your checking account dips below $0 due to a cashed check for which you have insufficient funds or a charge on your debit card, the bank automatically transfers money from your savings account to cover the withdrawal. Some banks will charge a fee for this service, but the fee is often lower than an overdraft fee.

6. Link your checking account to a line of credit. If you have good credit, this is a legitimate option. Rather than withdrawing funds to cover your overdraft from a savings account, the bank taps your line of credit. You will owe interest on the amount you borrow from your credit line, and you may owe an annual fee for use of the credit line, but the total fees could be substantially lower than a typical overdraft fee.

7. Ask to remove overdraft protection. Banks believe overdraft protection, even for a fee, is a service customers want. In many cases, that is true. If you send your mortgage or rent payment, you might prefer the large check not to bounce. Bounced checks cause problems for the recipient and the sender; overdraft protection eliminates this hassle. If it is not likely that you will bounce a major payment, it might make sense to ask your bank to remove the overdraft protection feature for your account. Keep in mind that you will still be charged a “returned check” fee if you bounce a check.

8. Track your finances electronically. There are many tools now that let you connect directly to your bank’s databases to download and list your transactions automatically. My current favorite is the desktop version of Quicken, but even with its robustness, this type of software may be more than what is necessary for avoiding overdraft fees in a checking account. I suggest signing up for a free service like Quicken Online, Mint, Thrive or Wesabe to put all your financial accounts in one place.

9. Create reminders and notifications. Many banks continue to improve their technological offerings for checking accounts. I know of at least one bank that will, if you enable this feature, send you a text message if your bank account decreases to a balance you define. For example, you might receive a notice when a cashed check reduces your balance to $95, five dollars below your established warning minimum of $100. If your bank doesn’t offer this feature, one of your linked services will. Although I don’t use this service often, I receive an email from Mint when my Wachovia personal checking account balance dips below $2,000.

10. Look for free overdraft protection. Some credit unions offer checking accounts with free overdraft protection. You can start at the Credit Union National Association’s credit union finder.

Overdraft fees happen to the best of us, because we are all human and make mistakes. The best thing we can do is reduce the occurrence of these fees to a point at which it will be much easier to talk with the bank when the mistakes do happen. Opening a line of communication can help, and if you maintain a good conversation with customer service representatives, you may be able to convince banks to make an occasional overdraft fee disappear.

This negotiation works best when you have a positive history with the bank. The more overdrafts you have on your record, the less likely the bank will be willing to forgive your fees. If you prove yourself to be a good customer, you have a better chance of being rewarded.

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Podcast 19: Giving Yourself a Raise

by Flexo on August 30, 2009

in Podcast

Our guest today is Matt Jabs, blogger and founder of Debt Free Adventure, a blog designed to help the author stay accountable for getting out of debt. Debt Free Adventure is one of my favorites among new personal finance blogs.

Today’s discussion focuses on the concept of giving yourself a raise, an important way to improve your financial condition, particularly in an economic environment that is supporting fewer raises from your employer. Tom Dziubek and I explore this concept with Matt Jabs and discover a number of ways you can give yourself a raise today.

 

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Tom Dziubek
[00:33] Interview with Matt Jabs of Debt Free Adventure
– [01:10] Matt’s inspiration for writing about personal finance
– [02:57] Giving yourself a raise at home
– [04:26] How to give yourself a raise
– [08:41] Creating a personal trigger to change your mindset
– [10:24] Living outside the box
– [12:16] Finding and following your passions
– [14:29] The journey is as important as reaching the goal itself
– [15:59] Dealing with customer service reps
– [21:39] Do it yourself
– [25:17] How it adds up
[28:04] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

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Consumer Confidence Above Expectations: Are We Out of the Woods?

by Flexo on August 26, 2009

in Consumer

Depending on which newspapers and news websites you read, the Consumer Confidence Index either soared, jumped or surged this month. The headlines as you would expect don’t tell the whole story.

The Conference Board calculates this index by performing a random survey by phone of 5,000 households in the United States, selected because they represent the country as a whole. The questions in the survey ask the respondents how they feel about the economy as they look towards the next six months. Will there be more jobs available? Will they receive a raise?

The results of this questionnaire moved the Consumer Confidence Index from 47.4 in July to 54.1 in August, significantly beating the economists’ expectation of 48. Economists are calling this a major win for the economy, but to me it just looks like those in charge of the predictions got it wrong. If the expected August index was 55, we would see disappointed headlines rather than the exuberance expressed today and yesterday.

Consumer confidence becomes a “self-fulfilling prophecy” in some ways and a feedback loop in others. Those who respond to the surveys with a favorable outlook cause the Index to move upwards, and the news of the index moving upward encourages businesses to start operating as if the economy is heading soon towards recovery.

But let’s keep this in perspective. While the economists are joyous about the Consumer Confidence Index’s jump, the index is significantly below the level one would consider “good.” According to CNN, we would need to see an index of 90 before the economy can be considered solid. We’re only at 54.1. We have a long way to go before jobs start appearing in the market and before people start spending more.

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Cash Back Rebates Now Take the Form of Prepaid Debit Cards

by Flexo on August 24, 2009

in Credit

My girlfriend is an elementary school teacher in the New York City public schools. One of the benefits of her employment is the reimbursement for the purchase of supplies and materials used in her class. Any teacher will tell you that they are required to pay for many of their own materials, and the amount of the reimbursement is subject to a maximum that never covers their full expenses.

The reimbursements until recently were distributed via check, an old-fashioned method of payment. More recently, the City of New York switched to prepaid Visa debit cards, offered by Chase Bank. This must be the result of some sort of a deal between the city and the bank because it does not make much sense for the employee.

Debit cards are meant to be used for spending, but these reimbursements take place after the spending is completed. If you want to use the reimbursements to pay yourself back for your spending on items for the classroom, you must visit a Chase branch to convert the card to cash. We tried taking the debit card to her personal bank of choice, TD Bank, but they claimed to be unable to do anything for us with the debit card.

These prepaid debit cards seem to be the latest trend for rebates. Verizon Wireless, the cellular carrier of choice for both me and my girlfriend, offers rebates on a number of its phones. The last time she needed to purchase a new phone, the rebate came not in the form of a check as it had on prior occasions, but in the form of a prepaid debit card. These cards are touted for their “convenience,” but absent direct deposit I would prefer a check.

Verizon Wireless offers a feature where you can replace your debit card by entering your information online, thus deactivating the card and issuing the old-fashioned paper check to the address on your account. This is a better option but introduces an extra step that many people will simply ignore.

Checks find their way directly into bank accounts while debit cards only make appearances in stores for purchases. If your spending is tight, this might not make a difference. If you use the debit card to purchase something you would have had to purchase anyway, without the debit card, the form of payment won’t affect the amount you spend. Most people’s spending is not tight and controlled. When you send debit cards out to 80,000 teachers, I would believe that many will be used for extra spending and some will not be cashed or used at all. The same is true for wireless phone customers who receive those rebates.

There are reports that the debit cards issued for consumer rebates are unreliable. Some have no problems while others find that cards are declined when they should not be. Even worse, some of these prepaid debit cards have monthly fees. The new rebate debit cards offered by Staples charge a $3 monthly “account maintenance fee” after six months. In states where they are allowed, which I believe is every state except California, fees can eat away at your rebate card balance until you are left with nothing. It is best to cash these rebates or convert them into a check and deposit the funds as soon as possible.

Have you seen more rebates offered in the form of prepaid debit cards? What are your experiences?

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