In another Sears incident, one blogger details her story at length about how she had extreme difficulty getting her money back from a Master Protection Agreement that failed to provide coverage for her digital camera. The long and the short of it is that she paid for part of the MPA with a gift card and part of it in cash. When she went to get it refunded (due to Sears not even servicing digital cameras after all!) the store manager required her refund be given in the form of a store credit.

A former Sears appliance salesman basically created a Master Agreement Manifesto detailing the dubious nature of these offerings. Among the highlights I found unbelievable:

• the company holds weekly meetings to discuss MA quotas and techniques to sell them
• the salesmen are told to not give up selling the MAs until the customer says “no” at least three times
• a mathematical diagram called the bathtub curve which display high failure rates for products either in the first days of use or many years later thus making a curve the shape of a bathtub. Sears uses this curve to maximize profits on the MA by making the warranty end right when failures become more likely (in many products after three years)
• for many people the MA ends up being a waste of money because they lose it or forget to use it

As many of my posts stress, remember the following tips when buying from a major retailer. First, using their in-store credit card significantly increases the chances of you getting taken to the cleaners on interest charge if you miss a payment. Second, the extended warranties are a rip-off that transport cash from your wallet to the retailer’s pocket and end up providing you little and the merchant a lot. Third, loss leaders will often get you into the store for a free or cheap deal, but often you are enticed to buy more once in the store. Remember these tips for maximum savings for you.

Car leases. Noted financial expert Dave Ramsey mentions an astounding statistic in his book the Financial Peace Revisited. He claims that on average a car dealer makes $1200 profit from customers who lease the car, $700 profit from those who finance the car and $72 from those who pay cash for the car. The single biggest reason that leasing is so popular is that it lets you drive a car you cannot afford. I currently drive a car that is ten years old and my wife drives one that is eight years old. People who need a new car every three years rationalize it by telling themselves that older cars are unsafe. This is a load of malarkey. Both of my older cars have anti-lock brakes, security systems and more. Ideally you should pay cash or use a low-interest home equity line of credit when you purchase a car. If financing is your only option try to pay it off in two or three years.

Reverse mortgages. I truly feel sorry for senior citizens that are duped into signing on to a reverse mortage. What’s worse is that apparently the AARP endorses these products as evidenced by the site rmaarp. A quick synopis of the estimate I did for my parent’s home yields a return that royally stinks. You are basically signing over 20% – 40% of the value of the house to your lender. To add insult to injury the federal government insure some of these HECMs (home equity conversion mortgage) which essentially turns the equity into your house into a pseudo-annuity that they’d lead you to think you will get for life. However, these reverse mortgages have minimum age requirements of usually 62 years old or higher. It doesn’t take a genius to realize the actuarial tables have your life expectency nailed down as a certain level of risk based on when you’ll die. I understand why seniors opt for this product. They do it to generate cash if they did not effectively plan for retirement. That does not make it a good idea.

Warranties. As detailed in Secrets of the Big Box Stores retailers, just like reverse mortgage lenders, are playing the statistics to maximize profits on purchased warranties. As long as the repair costs covered by the warranties are continued to be less than the profits made by the warranties the stores will obviously keep selling them. I personally subscribe to the belief that most electronic products and automobiles are well enough made to outlast their manufacturer warranty which is nearly always included free of charge with the product. So stick with the basic free warranty and stop wasting money on the extended warranty. The majority of that warranty sale goes into the salesperson’s pocket anyway.

Payday loans. I would hope that no readers of this blog have ever used a payday loan. In essence they are used by people who a) have no savings in the bank b) who always seem to have more month left over than paycheck and c) who have no concept of a 200% – 1000% interest rate. Fortunately the U.S. Congress is stepping in to limit the interest rates to a mere 36%. The bottom line is that these payday loan lenders found a niche exploiting the poor and financially uneducated. This is one government intervention I endorse.

Buying more computer than you need. As a fifteen-year corporate I.T. veteran I can tell you that most people who buy a computer (without my assistance) spend two to three times what they need. Over 90% of computer users simply surf the Web, send emails and occassionally type up a document or letter. A decent computer that will last you three to five years can be purchased for $400 – $800. One the best sites to find a bargain on a new PC is here. No need exists to spend $1000, $1500 or God forbid $2000 on a computer today. Gamers, CAD users and graphic designers are excluded, but the rest of PC buyers should save their money for a better use.

Vacation Clubs The appeal of these clubs is that you are able to, in theory, budget a certain of amount of spending per year on your vacation while choosing among hundreds of destinations throughout the U.S. (or wherever you live).  Many times the entrance fee to “purchase” ownership in these clubs are $10k – $30k and that’s just the beginning.  Often a monthly maintenance fee is charged whether the property is used or not.  Also, enormous amounts of profits are derived from the companies by pushing upgrades or additional perks while on site at the vacation property.  Two acquaintances of mine shelled out $20,000 for the Disney Vacation Club and then spend around $400 a month just for maintenance.  This is neither a deal or prudent vacation budgeting.

Think twice before you plunge into any of the above financial pitfalls.