How Warranties Can Contribute to Debt or Prevent It

Most people would agree that insurance is necessary in order to ensure financial protection for an individual's home, car, and health. This protection offers compensation in the case of a catastrophic event and helps to insulate an individual from the accumulation of excessive debts. Today many companies are trying to convince consumers that financial protection should also be purchased for goods ranging from televisions to dehumidifiers. This protection comes through the purchase of a warranty. Salesmen will try to convince people that for a reasonable price you can end up saving hundreds (or thousands) of dollars if the product breaks or is damaged. On the other hand if an individual were to accept every warranty (or extended warranty) offer that came along they would generally end up paying out much more money than they would ever save. Are warranties a good investment? The answer is a definite...maybe.

Click Here for a Free Debt Consolidation Quote! Reduce Your Credit Card Debt by up to 60%!

Factors to Consider

• Your risk tolerance. Statistically most people will never have a need for a warranty. If they did then companies would not make money by selling them. However, if the prospect of an untimely repair bill keeps you up at night then maybe it would be worth it. Sometimes you can. t put a price tag on peace of mind.

• How costly is the product. Lower end mass produced products have often become inexpensive disposable commodities. In many cases in would be in your best interest to pass on this type of warranty. The worst case scenario would entail spending a few more dollars on a new product. This may well be worth the risk of saving a few dollars up front. On the other hand, if the product is a necessity and you can not afford to replace it then a warranty may be a good option.

• Is a sufficient manufacture's warranty is included? For example, let's say that you purchase a new plasma television and plan on keeping it for 2 years. If there is a comprehensive manufacturer' s warranty in place for 2 years then there would be no reason to purchase a warranty or an extended warranty.

• Automobile warranties often vary between locations. Extended coverage on automobiles is one of the most popular warranties on the market today. Competition is high among dealerships so if you are interested make sure and shop around. (1)

Determining when a warranty may be right for you is something that needs to be done on a case by case basis. There is no hard and fast rule that can be applied across the board. One important factor to keep in mind is that warranties are very high profit items. As a result, salesmen often apply high pressure selling techniques. Be prepared for this and do not allow yourself to be bullied into a purchase if you decide that it would not be a wise.

(1) http://www.bankrate.com/brm/news/auto/car-guide/extendwarrnty.asp?prodtype=auto

~~~~~~~~~
About the author:

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.