Trap #3

Unnecessary warranties

This holiday season, shoppers are expected to spend more than a billion dollars on extended warranties. Appliance and electronics retailers push shoppers to buy extended warranties or service plans because the store keeps 50 percent or more of what they charge for them. That's much more than they can make just selling the products. But extended warranties are notoriously bad deals because some repairs are already covered by the standard manufacturer's warranty that comes with the product. And our data show that products seldom break within the period the extended warranty covers—after the standard warranty has expired and within two to three years of purchase. When electronics and appliances do break, the repairs, on average, cost about the same as an extended warranty.

Dodge it! Our decades of brand research have shown that products are reliable enough that we don't think you need extended warranties. But if you'd like the peace of mind an extended warranty can provide, you might be able to get similar coverage by charging the item on a credit card. Check your card agreement; some cards, especially gold and platinum ones, lengthen the original manufacturer's warranty by as much as one year. If you can't rely on your card's additional coverage, channel your inner Scrooge. Get the cheapest deal you can on an extended warranty by including the cost of one in your price comparison. Always try to negotiate a better deal. And don't pay more than 20 percent of an item's purchase price for any warranty.

This article appeared in Consumer Reports Shopsmart Magazine.