Monday, June 28, 2010

How to Avoid Getting Ripped Off

This is my most recent column

Ten Ugly Fees and Service Contract Traps

By John Wasik

The fine print is getting worse.

Whether you have a cable, phone, or credit-card contract, you're going to get overcharged unless you're vigilant.

I wish I could say that you're being nickel-and-dimed to death on these abuses, but we're talking hundreds or thousands of dollars of unnecessary fees.

Bob Sullivan, author of Stop Getting Ripped Off (Ballantine, 2009), which chronicles how companies use hidden contract language, calls pricing schemes "the death of the price tag" -- where companies play games to get you to ultimately pay more than you originally were told.

Here are some common snares that catch millions:

1. Cell Phone Pricing Plans. Are you able to intelligently compare one company to another? Probably not. They're designed to confuse you. "There are a million permutations for cell phone pricing," Sullivan notes.

It's hard to tell which is best unless you keep track of how much you use your phone. Often times, the best plan is prepaid. A related ruse is to only offer the best smartphones with two-year contracts. Only the cheaper phones allow you to save money.

2. Credit Card Fees. Banks will do anything to layer on fees. If you don't pay on time, go over your limit, or use cash advances, you'll pay dearly. The best use of a credit card is to pay within the grace period. If you have trouble keeping track of the due date, use auto-billing that's linked to your checking account.

Also look for cards that pay you back. Because I never carry a balance from month to month, my cards reward me with college savings and airline miles.

3. Auto Dealer Financing. This is the last step of buying a car. You're ushered into the finance office and offered "great" deals on a loan or are pressured to buy a warranty or other extras that are pure profit for the dealer.

Get pre-approved for financing before you walk into the dealer. Some of the best deals are from credit unions. And be ready to walk if you're mistreated. By the way, the new financial reform law offers no protection in this area.

4. Cell Phone Upgrade Fees. You're excited when your phone company allows you to upgrade because you can get a unit with more features, but ask if they'll hit you with an upgrade fee, which can range from $18 to $36. You can always refuse to pay it or jump to another company that doesn't charge.

5. Excess Minutes Charges. If you exceed the number of minutes allotted in your cell phone plan, you'll be charged at a rate 600% to 800% higher than the contracted rate. Make sure you give yourself some fudge room when you select your plan. Some half of cell phone users say they don't use all of their minutes every month, so choose your plan carefully.

6. Insurance Isn't an Investment. Agents love to sell policies and variable annuities that are indexed to the stock market or carry guarantees. These plans are among the most expensive available and pay agents fat commissions. If you want a pure investment
, select an index mutual fund or exchange-traded fund. If you want pure insurance, select level-premium, no-load term-life or immediate annuity.

7. 401(k) Fees. These are among the most-hidden expenses. You'll have to ask your employer to find out how much fund managers and middlemen are getting paid. It's important because the "annual expense ratio" is deducted from your retirement account. Stock-index funds shouldn't cost more than 0.50% annually; bond funds shouldn't charge more than 0.25%.

8. Low Credit Score Costs You. If you have a low credit score, you'll be charged higher loan rates. Always check your score before you apply for credit. You have a right to see your report and make any corrections. You can also raise your score by not spending more than half of your credit limit on credit cards.

9. Cable TV Charges. Cable companies want to sell you everything -- phone, TV, Internet, and movies. They will offer you all kinds of incentives to get you into the largest bundle possible, but you should set a budget for how much you're willing to pay before you sign a contract. Also keep in mind that movies are free at your local library.

10. Negotiate! I've lost track of the number of times my credit card company has tried to slap on a late fee or finance charge when they knew full well my payment came in on time. I just call them and tell them to remove the charge or I'll move my business elsewhere. It works nearly every time.

John F. Wasik is author of "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream".

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