5 Dumb Deals And What To Do Instead

The world is full of evidence that when something’s heavily advertised it should be heavily scrutinized. In this story we cover five of countless examples.

1. Frequent flier cards that don’t fly anymore

Credit cards that offer frequent flier miles used to be great deals, but with rising expenses and decreasing fliers airlines have had to cut back wherever they can. And in many instances, frequent flier programs took the hit. These days, they’ve raised the number of miles needed to cash in on free seats and lowered the number of free seats available, so it’s really not such a good deal anymore.

Better idea? Get a cash-back credit card and use the extra money to shop for cheap airline seats.

2. “Interest bearing” checking accounts that aren’t bearing interest.

Many interest bearing checking accounts are only paying 0.25%… 1/4 of a percent! A measly $12 a year on a $5,000 account and a rate far below even today’s meager inflation rate.

Better idea? Find a free checking account (credit unions are a great place to look), then shop for the best savings account you can find. Some are up to 3%… still not much, but 12 times what you were earning with “free” checking.

3. Extended warranties that extend your expense

Extended warranties may sound like a good idea, and they could be… if they didn’t cost so darn much. As it is, most aren’t worth the money. Sure, there’s the occasional thing that breaks, which you get repaired for free with the warranty. But add up all your extended warranties and they’ll likely cost more than you would’ve spent on repairs for the one thing that actually broke. There are exceptions, and exceptional situations (I’ve got a puppy in my house right now, and wish I’d purchased an extended warranty on pretty much everything within her reach,) but by and large these things are profit centers for the dealers that sell them more than they are profitable protection for you.

Better idea? See if your credit card offers a buyer’s protection plan, check for a good manufacturer warranty before you buy, or just take your chances. Oh, and don’t get a puppy.

4. Free credit reports that aren’t free

There’s a heavily advertised website with a jingle so pervasive that it’s likely the first place we all think of when hearing the phrase “free credit report”, but that site doesn’t give you a “free” credit report unless you sign up to use a service that isn’t free. That shouldn’t even be legal. But legal or not, it’s definitely dumb.

Better idea? Get a free credit report by going to the site where you can actually get one: annualcreditreport.com. You’re entitled to one free credit report from each of the big three credit reporting agencies (Experian, TransUnion and Equifax) once every 12 months. Which means that you can get one free report from one agency every four months, thus looking in on your history several times throughout the year.

5. Paying money to repay money

Mortgage service companies have for years offered special “plans” that promise to retire your mortgage years early by essentially having you pay half your mortgage every two weeks rather paying the full amount once a month. Since the year has 52 weeks, doing this will cause you to make 13 payments rather than 12, which in turn will reduce your mortgage principal and result in retiring your mortgage early. Paying extra principal on your mortgage? Great idea. Paying some company that’s already making a ton off of you to use a “system” that you can use anytime you’d like for free? Dumb.

There’s certainly no shortage of dumb products and services out there. Those are five of our ideas. Tell us yours!

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Comments & discussion

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  • http://www.mbabriefs.com MBAbriefs

    Good point about frequent flier miles – I’d accumulated over 20,000 frequent flier miles with half a dozen carriers and the only thing I was ever able to do with them was get free magazine subscriptions.

    I’ve had extended warranties on my vehicles in the past and just barely broken even. You have to read the fine print because there are a lot of repairs you would think are covered but actually aren’t. Plus, if people didn’t pay too much for the insurance the companies wouldn’t make a profit. Better idea would be to take the money you would have spent on insurance and as you suggested put it into an interest bearing savings account.

    I wish someone would shut down the free credit report guys – their jingle makes me want to grab the nearest sharp object and puncture my eardrums. Consumers have had access to true free credit reports for a couple of years now, and MyFico is another good option for a small subscription fee. If the report is free you have to ask yourself how they can afford to pay for all those commercials.

    I’ve also never understood why people pay for the bi-weekly mortgage payment. I’ve heard and read you can negotiate bi-weekly payments with your mortgage lender without any additional fees.

    Great article – I’ll be racking my brain to come up with a number 6 :-)

  • Dee Rhodes

    Would it be possible to pay down other loans using the same system? A friend of mine had bought a new car a few years back, and even paying 18% down, when she figured out how much interest she would be paying at the end of the 60 month contract she almost feel over!

    Also, what would you do if there was a pre-payment clause on the mortgage?

    • Chris

      Dee,

      Personally I wouldn’t sign up for any loan that had a pre payment penalty. If you have that on your loan, well then you are stuck with paying all that interest.
      Without the penalty you can really have the same effect without changing anything except how much you pay. If you are suppose to pay $500 a month for principal and interest, and you pay $600 the extra $100 is suppose to go to principal, and since that $100 will not be principal that you owe next month and the months after that, you will no longer be paying interest on it. Contacting the lender and making sure that they apply it to the interest instead of a “future month’s payment”, is always a good idea.

      • wyrd

        Last sentence should read "Contacting the lender and making sure that they apply it to the principal instead of a future month's payment."

  • D. Reynolds

    Paying money to a company (usually attorneys) who have found unclaimed property in your name. For a percentage of amount of unclaimed property they will file the papers for you. Really dumb when you can go to the unclaimed property website in your state and find out for yourself if you have any unclaimed property and if so, fill out the papers yourself and you don't have to split the money with anyone

  • GettingRichOneNickle

    I believe that lack of willpower is 99% of why we overspend on dumb stuff. Many people complain about the price of gasoline per gallon. I have a tip for many of you to save "at the pump." (The rest of us already know.) Don't go into the convenience store; pay for gas at the pump, or pay inside and don't buy anything else (an even greater test of willpower). That way, you won't spend that $4.00 or more on that coffee, soft drink, candy, and chips snack when you go inside. It's like saving at least 20 cents …or more …per gallon on a 20 gallon fill-up regardless of the current price of gasoline!

  • LadyWillpower

    I think the FreeCreditReportGuy is soooo cute! (But I get my credit reports free online, as suggested.)

    My money saving suggestion is to pay at the pump when buying gas. It takes willpower, but the extra money I save by not spending $4.00 or more for snacks and drinks inside is like getting a break on the price per gallon of gas. I "save" 20 cents …or more …per gallon on a 20 gallon fill-up!.

  • Dan

    I have a Mobile credit card that gives me a discount on gasoline purchases…plus I pay at the pump. I only use the restroom occasionally when I fill up.And that is the only reason I go in the store. I get a reciept at the pump.

  • Jay

    The airline miles are a complete waste. 2 years and all I got were a few magazine subscriptions. Get yourself a cash back credit card and it practically pays for itself.

  • Laura

    Another waste of money is that a lot of utility companies have taken to charging a fee (usually 3 to 5 dollars) for the "convenience" of paying your bill by phone or internet. Since you pay through an automated system, it isn't like you have to pay for a human to run these things. It's just a "laziness fee" that can be easily avoided by going downtown and paying your bill in person on your lunch break.

  • Laura

    Another waste of money is that a lot of utility companies have taken to charging a fee (usually 3 to 5 dollars) for the "convenience" of paying your bill by phone or internet. Since you pay through an automated system, it isn't like you have to pay for a human to run these things. It's just a "laziness fee" that can be easily avoided by going downtown and paying your bill in person on your lunch break.