Friday Mythbustin': The Extended Warranty

A few weeks back, a post about how I took advantage of I took advantage of my own stupidity when I'd bought an extended warranty. Using it now, I was able to get my old video camera working again.

Well, it turned into a celebration of all things warranty. We all posted about great things that happened when we got the warranty from one place or another. That, together with the enthusiastic endorsement of the person trying to get you to buy the extended warranty, may lead you to wonder why I even said in that post that warranties are usually a bad bet.

So, I thought I'd clear it up.

Warranties are insurance.

Insurance is a way of making things more expensive.

For example, we as Americans pay more for health care than what health care actually costs. This is because most doctors are not actually paid directly--they're paid either by an insurance company or the government. Which means that we not only have to pay for the salaries and equipment of the people in the doctor's office, but also for the salaries and equipment of the people who work at the insurance offices or the government buildings who process all of this money and these payments.

But what we do is put our money in a big pool and gamble, collectively, that we'll be the one it pays off for and that we'll get more out of it than we had to pay into it.

Now in the case of health care, it's obviously a necessity. The mere existence of the insurance industry has caused the prices to get so high that a medical crisis without insurance would bankrupt nearly anyone.

But for smaller things, odds are against you. Consider this quote from Dave Ramsey:

When you buy an extended warranty, you're covering commissions, overhead and profit. Thirteen percent of what you're paying for an extended warranty goes toward actual repair costs. If you'd set that amount aside, you could cover that average repair expenditure on your vehicle. The remaining 87% of what you are paying is going toward the warranty company's marketing costs (commissions and sales expenses) and profit. Extended warranties are extremely profitable for those selling them and a terrible deal for those buying them.

In other words, statistically speaking, you're only going to use that warranty 13% of the time--about once for every ten items you purchase. Those are horrible odds! A Vegas game with odds like that would be ignored even by the dimmest of casino goers.

Instead of shelling out money to these folks for each purchase you make, create a well-stocked emergency fund of your own. If the statistics hold true, your dollars will go almost eight times as far as if you'd paid them to take care of it.

And, don't underestimate the value of good old fashioned customer service. Use the regular warranty as often as is necessary. More products than you think actually have "lifetime warranties" on them. Also, many stores--like Wal-mart, dreaded as they seem to have become--have very liberal return policies as long as you're trading for merchandise rather than getting cash. As my cheapie Wal-mart VCRs have broken down quickly, I've just returned them and shelled out a couple more bucks for a slightly nicer model. I've done this a couple of times, until I finally got one that's worked fine for me.

So, use the customer service programs that already exist in the store, set up an emergency fund, and, in most cases, do a Nancy Reagan on anybody who pushes the extended warranty at you--just say no.

Free Credit Report

Okay, so I'm the last one to find out about this.

At least it feels that way. But since I still hold on to the hope that this might be useful to someone, I'll post it anyway.

It seems that there's been a new law passed that requires every credit reporting agency to issue a copy of your credit report to you for free at least once a year.

It's being phased in regionally, and as of yesterday, only the northeastern states are not yet eligible. Everybody else can go to annualcreditreport.com to get a printable copy, or call 1-877-322-8228 to request a copy be mailed to you.

The northeast will become activated for this September 1st.

Now, keep in mind, this is the only website that is legitimately offering these free credit reports. Other websites that purport to offer free credit reports actually sign you up for a credit monitoring service upon your request. I've heard this site makes a similar offer, but it does not require you to join, nor does it involuntarily place you on any list. This is where to go.

Make Diamonds -- Not Chaos!

If you've been to my house, you've seen there's a lot of signs around my desk. Some are about debt, with Dave Ramsey quotes, and others are about writing, with Artist's Way quotes. My wife makes these for me, as a way of encouraging me.

The title of this post is from the newest sign she made. It's from a quote that's my own. I wrote it in a training article for work.

"Explosions don't make diamonds. They just make messes. Diamonds come from consistent, intense pressure over time."

It's meant to be a reminder that it's better to do a little bit of something day after day after day than to try to do a whole bunch of stuff, all on one day. I think it's in our culture to make explosions rather than diamonds--we're used to the idea that problems can be solved quickly. TV teaches us that if a problem is funny, we can solve it in half an hour, and if a problem is serious, we can solve it in an hour.

For this reason, I think TV also teaches quick-fix values ("So what if your doctor says your weight problem will kill you? The most important thing is that you learn to love yourself for who you are").

The truth is that success at anything is slow and boring. Jackie Chan can make jumping through a window look easy because day after day he was forced to do arduous exercises at the Chinese Opera where he was raised. Successful writers don't just fling books out at the world and bask in fame--they spend most of their time alone tapping keys.

We tend to make dramatic starts--we stuff all the junk food in a trash can, or we rush out and buy a huge home gym or we vow to run 5 miles, right now, today. In a movie, that's all we get. The moment of resolve. The time when the change happens. We can just assume from there that it's all flowers and roses and happily ever after.

In reality, it's not always that way. If you've ever pushed against a door you thought was stuck, only to discover it wasn't even closed, you've experienced an interesting sensation--you pull back. You stop going through the door. Even though it's going where you wanted to go, your body has to compensate for the extra force you put into it.

Same thing here. Too much force at the start can force your mind and heart to pull back. It can actually inhibit your efforts. Counterintuitive, maybe, until you give it a little more thought.

A little each day pays off far more than a whole lot of fireworks that fizzle out fast.

Make diamonds, not chaos.

Chase Visa Wants Blogged About

Chase Visa, apparently disappointed I haven't mentioned the $400 card I kept for emergencies after I paid it off, has decided to do something stupid in order to get some blog time. I'm willing to give it to them.

A little after we paid off the card, my wife got a call from them asking if we wanted to sign up for some kind of protection service where we'd have certain transactions monitored. My wife, not sure if this was something we needed or not, asked them to send us the information.

When our bill came this month, we were charged for the service. Which we never signed up for.

When my wife called to point out that we'd never signed up for it, she was told that she must have signed up for it, because otherwise they wouldn't have been charged for it.

So she explained the prior conversation to the lady, saying she had only asked for information.

Honest, the lady's reply was something to the effect of, "Oh, well that explains it. We have to sign you up for it to send the information."

My wife still hasn't been able to convince them to reverse the charge and cancel them from the program.

I'll be calling them myself tomorrow, and I'll be sure to tell you all about that conversation.

Coupon Sadness

Okay, so how was I supposed to know they wouldn't put coupons in the paper on a holiday? Other holidays, they load that thing up with more coupons than . . . than . . . well, than something with a lot of coupons in it.

You can always try it next week.

Have a great holiday!