Dehumidifier and warranties

[timothy42b]

The basement needs a new dehumidifier.

These have become disposable items. I've yet to get one past two years, and often less.

I had one in a cart at Walmart this weekend, I'd figured how to beat the game. I was going to pay for the extended warranty. I normally don't do that, but for this it was going to be worth it.

Except they didn't offer the warranty anymore, so I didn't buy the appliance.

So my question is twofold: good brand of dehumidifier, if that exists, and more important, where to buy it to include an extended warranty?

[Doug Elliott]

I have a Comfort Aire that I don't use anymore but it served well for a few years and as far as I know it still works. It's probably 15 years old.

Some credit cards offer a doubled warrantee on anything you charge with it.

[timothy42b]

15 years ago it might have used R22. R410a runs at about twice the pressure. There are some internet claims that this is why they don't last very long, but I don't know if there's evidence for that.

[timothy42b]

I found a website that seemed reputable. It says the extended warranties are not economic, even though we know the dehumidifier will break, if we have to ship it back.

http://www.best-dehumidifier-choice.com ... tions.html

[norbie2018]

Planned obsolescence. I bought the extended warranty for the Menards house brand.

[JLivi]

I bought a GE dehumidifier from Home Depot. So far it's lasted me 2 years, but I only run it in the late spring, summer, and early fall. I live in the midwest so I only use it May through October.

Not sure if you have a Costco membership, but they usually have great warranties with whatever they sell. Good luck!

[timothy42b]

That website said GE and Fridgidaire were good brands, but I shouldn't expect them to last either.
I bought a GE at Home Depot. It comes with a one year warranty and I paid $45 for an extra two years. I will report back when it breaks and let you know how the warranty worked or didn't.

[Arrowhead]

My thoughts on the" extended warranty" (of all kinds): it's a rip-off. It's pure profit for them. If it wasn't, they wouldn't offer to you in the first place.
I buy a dehumidifier with the knowledge that it's not going to least beyond 1-2 years. There are some ways to extend the life of a dehumdifier- don't leave it constantly running. Instead, just turn it on once a week, let it fill up, empty it, THEN STOP. When it's not running, just run a fan through the area with FRESH AIR. This will help replace moldy, moist, stale air areas with dry, fresh air.
My mother leaves a dehumidifier on in her basement constantly, and she constantly has to empty it, BUT she doesn't allow fresh air into the area and it just smells funky on a continuous basis.

[LarryPrestonRoberson]

I had one in a cart at Walmart this weekend, I'd figured how to beat the game. I was going to pay for the extended warranty. I normally don't do that, but for this it was going to be worth it.

Except they didn't offer the warranty anymore, so I didn't buy the appliance.

I recently bought an external hard drive from Walmart. I planned to buy the extended warranty, but it wasn't an option at the time of purchase. I inquired, to the associate, as to why not. She said, "when an item is on clearance or is going to be phased out or replaced with an updated model, the warranties are no longer offered." Apparently such was the case of the hard drive in question. So, perhaps the particular model of dehumidifier you were going to purchase was being dropped or replaced by a newer model. Maybe you could try another model Walmart offers to see if the warranty is available.

[Matt K]

My thoughts on the" extended warranty" (of all kinds): it's a rip-off. It's pure profit for them. If it wasn't, they wouldn't offer to you in the first place.

It might be true that it's profit but it isn't necessarily true that it's a ripoff. It's simply spreading the risk to anyone else who purchases the warranty - given that the warranty is actually useful. I've had success with extended warranties as well as failures with extended warranties such as things not being covered that you'd expect to be covered. It's all in the fine-print. I have no idea how generous Wal-Mart's extended policy is but I've used several others and it's saved me quite a bit of money.

[Arrowhead]

There are a bunch of reasons why the "extended warranty" on appliances is a colossal waste of time. Very rarely, if ever, does it ever benefit a person to have it.
They make money off of the extended warranty by volume. For every 10 or so warranties that they sell, maybe one person, will actually file a claim. If you do file a claim, there may be some sort of fee involved, you may have to mail the item somewhere (on your dollar), you may have to "prove" that it wasn't your fault the item broke, or even worse, the broken part on the item may not even be covered in the extended warranty.
An extended warranty also overlaps with a manufacturer's warranty. A manufacturer's warranty is covered by the name brand. An extended warranty is often covered by a third party company, who doesn't give a darn about the product. The company has incentive to care about their reputation, hence the manufacturer's warranty; third parties don't care one way or the other, hence the extended warranty.

[timothy42b]

There are a bunch of reasons why the "extended warranty" on appliances is a colossal waste of time. Very rarely, if ever, does it ever benefit a person to have it.

But, how rarely? This is a Bayes Theorem problem.

Nassim Taleb makes the point very well in several books (Black Swan, Fooled by Randomness, Infragile, etc.) that we are much better at assessing consequences than probabilities. That's why safety in the workplace is so difficult to enforce - that chip flying back into your eye might be in ten minutes, ten years, or never; should you wear safety glasses or not?

We (as a species, not me personally) buy extended warranties on items that rarely break; that makes sense only if the loss is catastrophic. I generally don't buy them, but did this time because my personal experience is that the probability of failure for this particular appliance is high.

[Matt K]

They make money off of the extended warranty by volume. For every 10 or so warranties that they sell, maybe one person, will actually file a claim. If you do file a claim, there may be some sort of fee involved, you may have to mail the item somewhere (on your dollar), you may have to "prove" that it wasn't your fault the item broke, or even worse, the broken part on the item may not even be covered in the extended warranty.

As the number of warranties 'cached-in' approaches 100%, the cost to the provider of the warranty rises to the point of a replacement value. It isn't clear to me what a reasonable ratio would be from this; the cost of these warranties is often far less than the actual product. So if they anticipated a risk of 10% extended returns on a $200 item, you would expect the cost to be closer to $20 but these warranties are often far less claimed. Its probably a substantially lower ratio depending on the product. That's how I got a $200 hard drive replaced for $1.48. They could have had 1000 purchases or 10000 for every one they replaced, which still doesn't mean it's a rip-off as it was mutually beneficial.

Deductibles are often also involved. This is especially true of phones. There are the stories you often hear about people who have insured their phones for $x per month with an $y deductible where if you actually do the math, they could literally have purchased another phone, new, within 12 months and saved money.

Ditto with other conditions. When I purchased my current car, I was offered a 5 year extension (in addition to the standard 5 year warranty). The cost + the deductible on day 1 of the coverage was actually more than the current MSRP on the vehicle. In other words, I can push my car off a cliff on day 1 after the initial 5 year warranty expires, walk into the dealership and buy another car and it would still be cheaper than paying for the extended warranty. To top it off, the big consideration about depreciation in vehicles is often damage to the body. At least on the east coast of the US because of salt. These warranties do not cover any body damage which effectively means that the warranty doesn't cover a major issue that would render the car worthless. So in such a case, the warranty is not worth it.

Incidentally, in the case of the car warranty... I literally laughed when I did my back-of-the-napkin calculation and he asked if there was a price I would be willing to pay. I indicated that it would be 1/100 of that price at which point he halved the cost, which still wouldn't have been worth it, before quickly moving on to the next section.

At any rate, in such cases, of course the calculation must be done to ensure you aren't paying for something that you'll never see. But as I mentioned, they are not universally poor choices for the consumer. Nor are they a poor choice if a 3rd party handles the warranty. Actually, at least anecdotally, the best experience I have had was with a 3rd party vendor who handles such insurance claims for one of the larger online retailers. I have saved far beyond what I have spent for my warranties such that I'm a net loss when you look at me as an individual but on the whole they are obviously doing quite well. This includes small appliances such as a milk whisker through more expensive computer components. They do require that the damage be not through negligence ('prove that you didn't cause the damage') but that has never been an issue for me personally and I've submitted around 20 claims. Bear in mind that while this number probably seems high, I get them for almost everything. But several of those claims have paid for a multiple of the total sum of all the extended warranties I've ever purchased.

[Arrowhead]

They make money off of the extended warranty by volume. For every 10 or so warranties that they sell, maybe one person, will actually file a claim. If you do file a claim, there may be some sort of fee involved, you may have to mail the item somewhere (on your dollar), you may have to "prove" that it wasn't your fault the item broke, or even worse, the broken part on the item may not even be covered in the extended warranty.

They could have had 1000 purchases or 10000 for every one they replaced, which still doesn't mean it's a rip-off as it was mutually beneficial.

If there's a 1000 purchases for every 1 they replaced, wouldn't that mean that 999 didn't use an warranty that they paid for? Maybe I'm misunderstanding what you were trying to say.
My point was that, if for every 10 extended warranties they sell, only 1 ends up actually using, that means that 9 didn't use it, which means it was a waste of money; hence, a rip-off.

The worst examples of extended warranties are, as you pointed out, car warranties. I have a Toyota Camry. It has 138,000 miles on it. Not once have I ever had to get anything repaired on it, so if I signed up for the "extended warranty" that was offered by my dealer - 100,000 miles/5 year (or whatever) for $5,000 it would have been a complete rip-off.

if you're really worried that an appliance, car, hard drive (or whatever) has a chance of kicking the bucket within the first 1-2 years or so of purchase, maybe question the decision to buy that particular product, or just plan on replacing said product anyways. These types of issues are as much about the purchaser, as is the product itself.
There are other things in society that are just as bad as extended warranties- pet insurance, pet care plans, car rental insurance, etc....

[BGuttman]

They could have had 1000 purchases or 10000 for every one they replaced, which still doesn't mean it's a rip-off as it was mutually beneficial.

If there's a 1000 purchases for every 1 they replaced, wouldn't that mean that 999 didn't use an warranty that they paid for? Maybe I'm misunderstanding what you were trying to say.
My point was that, if for every 10 extended warranties they sell, only 1 ends up actually using, that means that 9 didn't use it, which means it was a waste of money; hence, a rip-off.

The worst examples of extended warranties are, as you pointed out, car warranties. I have a Toyota Camry. It has 138,000 miles on it. Not once have I ever had to get anything repaired on it, so if I signed up for the "extended warranty" that was offered by my dealer - 100,000 miles/5 year (or whatever) for $5,000 it would have been a complete rip-off.

if you're really worried that an appliance, car, hard drive (or whatever) has a chance of kicking the bucket within the first 1-2 years or so of purchase, maybe question the decision to buy that particular product, or just plan on replacing said product anyways. These types of issues are as much about the purchaser, as is the product itself.
There are other things in society that are just as bad as extended warranties- pet insurance, pet care plans, car rental insurance, etc....

I think you are misunderstanding something.

The failure curve of most things follows something called a "bathtub". There are a few early failures, then it goes into a long period with few or none, and then the failure rate starts to climb as the thing gets too old. Things with warranty are intended to cover the early failures, and the warranty period us usually defined to exclude the later failures that occur at end of life, since the thing is considered worn out anyway.

At the bottom of the bathtub the failure rate can be more than zero and this is what the extended warranty is intended to cover. It's not zero but it should never be anywhere near 100% (which is what it would have to be to make you think your purchase was "worthwhile").

The extended warranty is like an insurance policy. You buy auto accident insurance not because you expect to be in or cause an accident but because these things happen and if it does the costs can be catastrophic for most people.

I paid for auto insurance for 30 years before I needed to place a serious claim. Does that mean I wasted my money for 30 years?

[Matt K]

They could have had 1000 purchases or 10000 for every one they replaced, which still doesn't mean it's a rip-off as it was mutually beneficial.

If there's a 1000 purchases for every 1 they replaced, wouldn't that mean that 999 didn't use an warranty that they paid for? Maybe I'm misunderstanding what you were trying to say.

My point was that, if for every 10 extended warranties they sell, only 1 ends up actually using, that means that 9 didn't use it, which means it was a waste of money; hence, a rip-off.

Your understanding of the scenario is correct. 1000 purchases of insurance, 1 claim. But more broadly, my point is that it doesn't matter how many people didn't use it, if you purchased the warranty for a price and set of conditions that you find acceptable then it is irrelevant, how many other people also filed the warranty. It should never be 100% because that would completely invalidate the point of purchasing it in the first place. In that case, you would simply wait until it broke and purchase a new one; from the perspective of the seller, it would require that the price would necessarily be 100%+ of the product. But as Bruce pointed out, a failure of the warranty to be claimed (e.g. it doesn't break) or being claimed late in it's depreciation schedule doesn't mean that there wasn't any value to the warranty.

if you're really worried that an appliance, car, hard drive (or whatever) has a chance of kicking the bucket within the first 1-2 years or so of purchase, maybe question the decision to buy that particular product, or just plan on replacing said product anyways. These types of issues are as much about the purchaser, as is the product itself.
There are other things in society that are just as bad as extended warranties- pet insurance, pet care plans, car rental insurance, etc....

1-2 years is relatively standard for the things I buy warranties for. Extended warranties are often for 3-5 years. At that point, I'd want to replace anyway because it's largely computer components which have a relatively rapid depreciation schedule that is approximately 5 years for me. I just checked to see the most recent purchase I made with one; it was ~$11 for a $250 GPU. If it breaks within 5 years, they'll either repair it or replace it. The break even point for the warranty is around 20 years. And given that I plan on replacing it within that window anyway. I haven't had to claim every warranty I've purchased; in fact, most of the things I purchased warranties for are still chugging along today. However, the few that I have had to claim have easily made up the difference for every warranty that I've ever purchased.

It's just a matter of the conditions, they aren't universally good just as they aren't universally bad.

[Arrowhead]

.....

[Arrowhead]

I haven't had to claim every warranty I've purchased; in fact, most of the things I purchased warranties for are still chugging along today. However, the few that I have had to claim have easily made up the difference for every warranty that I've ever purchased.


Isn't this sort of proving my point though? If "most" of the things you purchased warranties for are still "chugging along today,' wouldn't that mean that getting the extended warranty was totally not needed in the first place?

However, the few that I have had to claim have easily made up the difference for every warranty that I've ever purchased - well if you've only filed a few claims, how can that possibly make up for "every warranty you have ever purchased?". Filing a claim can only mean that you got reimbursed for that particular product.

[Arrowhead]

In response to BGuttman

I think you are misunderstanding something.

The failure curve of most things follows something called a "bathtub". There are a few early failures, then it goes into a long period with few or none, and then the failure rate starts to climb as the thing gets too old. Things with warranty are intended to cover the early failures, and the warranty period us usually defined to exclude the later failures that occur at end of life, since the thing is considered worn out anyway.

At the bottom of the bathtub the failure rate can be more than zero and this is what the extended warranty is intended to cover. It's not zero but it should never be anywhere near 100% (which is what it would have to be to make you think your purchase was "worthwhile").


I don't think I'm misunderstanding anything at all. It's the interpretation of the "bathtub" that I don't think people are understanding. If you buy an appliance from the store, and they offer you a warranty to cover any "mishaps" within the first 1-2 years, they know that:
1.) more than likely the product is not going to break anyways within that timeframe. 2.) the person will forget that they even have a warranty.
3.) they will lose the receipt.
In the event that they do use the warranty, there is the "pain in the ass" factor involved- you may have to come back in a month, it may not cover what you thought it would cover or you may have to mail it off somewhere. Very rarely is it going to be a straight-up "swap," right there at the store. And this is going back to the making money by "volume" point I made earlier. They know that very few people are actually going to use their extra warranty; therefore, they make money on it.


The extended warranty is like an insurance policy. You buy auto accident insurance not because you expect to be in or cause an accident but because these things happen and if it does the costs can be catastrophic for most people.

I paid for auto insurance for 30 years before I needed to place a serious claim. Does that mean I wasted my money for 30 years?


The analogy doesn't match, because car insurance is a requirement in order to drive your car legally (in most states). An extended warranty isn't required by law.

[Arrowhead]

I think this is a good resource about extended warranties....

[BGuttman]

I should point out, Arrowhead, that in my state I don't have to keep auto insurance in order to drive. It is often required if I take out a car loan or after I have an accident as an uninsured driver. But If I own my car free and clear I don't have to keep insurance. I do anyway. I think my state is a rare exception; most states do require you to have auto insurance.

Note that I don't often invest in extended warranties because the fiscal penalty of a failure between the end of the manufacturer's warranty and the end of the extended warranty is not large. If I buy a cheap hard drive I don't take an extended warranty because it only covers the hardware, which is cheap, and not the data, which is much more valuable.

[Matt K]

I haven't had to claim every warranty I've purchased; in fact, most of the things I purchased warranties for are still chugging along today. However, the few that I have had to claim have easily made up the difference for every warranty that I've ever purchased.


Isn't this sort of proving my point though? If "most" of the things you purchased warranties for are still "chugging along today,' wouldn't that mean that getting the extended warranty was totally not needed in the first place?

However, the few that I have had to claim have easily made up the difference for every warranty that I've ever purchased - well if you've only filed a few claims, how can that possibly make up for "every warranty you have ever purchased?". Filing a claim can only mean that you got reimbursed for that particular product.

Because the amount of money I've spent on warranties is less than the amount of money that I've received from warranties.

For example, if I buy items a,b,c, and d each for $100 + a warranty of $10 each for a total of $440 and one of the items breaks, my net is -$440. However, if I were to have purchased none of the warranties for a total of $400, my net would be -$500.

[Arrowhead]

But it doesn't cost them $100 to replace it; it costs substantially less.
If it costs them $100 to replace it, there would be no profit at all on the sale of the item, even without the warranty.

But like Dave Ramsey says, there's only a 12% chance that is something is going to go wrong anyways.
It's like you are buying an extended warranty, in the hope that something does go wrong, just so you can justify buying said extended warranty in the first place. But if you are buying those kind of items that have a high failure rate, it says more about the overall quality of the product in the first place, and it was never a good purchase to begin with. Stores like Best Buy make more money off of extended warranties than they do the initial sale of the product.

[BGuttman]

Of course it doesn't cost them $100 to replace the dud. But Matt is looking at it from his perspective. If his $100 widget fails he has to buy another at $100. Or he could have bought 5 warranties covering 5 widgets for $50. Net he's ahead $50 by buying the warranty.

If we look at it from the manufacturer's perspective, a properly defined warranty doesn't lose money. Example:

I make something for $75 and sell it for $100. I find that the failure rate in the field is 5% over 3 years. If I just replace the defunct modules, I have to replace 5 for every 100 I sell. If I sell a warranty for $10, I sell 100 for $11,000 and they cost me $7500. I can expect 5 to fail, costing me another $375. So my build cost is now $7875 and my income is $11,000. Profit is $3125.

[Arrowhead]

I should point out, Arrowhead, that in my state I don't have to keep auto insurance in order to drive. It is often required if I take out a car loan or after I have an accident as an uninsured driver. But If I own my car free and clear I don't have to keep insurance. I do anyway. I think my state is a rare exception; most states do require you to have auto insurance.

Note that I don't often invest in extended warranties because the fiscal penalty of a failure between the end of the manufacturer's warranty and the end of the extended warranty is not large. If I buy a cheap hard drive I don't take an extended warranty because it only covers the hardware, which is cheap, and not the data, which is much more valuable.

Yes, the statement of Auto insurance, has to do with the larger proportion of drivers, instead of the rare exception. Since (like you said), unless you have a special circumstance, you have no choice but to drive with auto insurance. The extended warranty, is another matter.

[Arrowhead]

Of course it doesn't cost them $100 to replace the dud. But Matt is looking at it from his perspective. If his $100 widget fails he has to buy another at $100. Or he could have bought 5 warranties covering 5 widgets for $50. Net he's ahead $50 by buying the warranty.

If we look at it from the manufacturer's perspective, a properly defined warranty doesn't lose money. Example:

I make something for $75 and sell it for $100. I find that the failure rate in the field is 5% over 3 years. If I just replace the defunct modules, I have to replace 5 for every 100 I sell. If I sell a warranty for $10, I sell 100 for $11,000 and they cost me $7500. I can expect 5 to fail, costing me another $375. So my build cost is now $7875 and my income is $11,000. Profit is $3125.

But it's betting that the product is going to fail. What happens if it doesn't? That means the people that brought extended warranties, wasted their money.
also, you're assuming that if it does break, that it would be an even swap, without any stipulations, and that's being idealistic. In Matt's example, it's assuming that it's going to be an even "swamp" without any problem from the dealer. So he's justifying by saying that yea, $40 is cheaper than $100. Yes it is, BUT THE CHANCES ARE AGAINST HIM. You can't argue with statistics.
What are you buying that has a defunct "module" (whatever that is), that fails within 3 years, that would be replaced without a hiccup? If a hard drive fails, the whole damned thing will fail, not individual "modules" that can be sorted. Just buy a high quality hard drive!
Watch this video and tell me where his logic is wrong

[BGuttman]

His logic is based on some big ticket items which are often repaired.

There are a couple of things that I agree with:

1. An extended warranty on a molded part like a phone case is a waste.
2. An extended warranty on a cheap and easily replaced item is a waste; especially one that is not repairable.
3. An extended warranty on a car is probably not worthwhile -- most cars come with a warranty that covers the infant mortality and the probability of something later going wrong is pretty small. For the few that are really bad many states have "Lemon Laws" to protect the buyer.

But an extended warranty is still like insurance. In most cases you are paying money and getting nothing back. But if the item does break at least you can get a replacement or repair. Is this the kind of risk you want to take? In some cases yes and in most cases no.

Incidentally, his body language is not comforting. He appears to be hiding something.

[Doug Elliott]

And if you include the value of your time for keeping track of those warranties and dealing with the return and replacement of the item... ?

Not worth it in my opinion.

I used to pay the "insurance" on my cell phone in case of loss or damage. I had to file 3 times (3 different phones). In every case I received refurbished phones that didn't work right - TWICE each time. Eventually I got new ones after spending MANY hours on the phone with Verizon complaining about it.

[Matt K]

But it's betting that the product is going to fail. What happens if it doesn't? That means the people that brought extended warranties, wasted their money.

Almost! That depends on your definition of wasted. More below.

also, you're assuming that if it does break, that it would be an even swap, without any stipulations, and that's being idealistic. In Matt's example, it's assuming that it's going to be an even "swamp" without any problem from the dealer.

Yes, this is an assumption. Again, more below.

So he's justifying by saying that yea, $40 is cheaper than $100. Yes it is, BUT THE CHANCES ARE AGAINST HIM. You can't argue with statistics.
What are you buying that has a defunct "module" (whatever that is), that fails within 3 years, that would be replaced without a hiccup? If a hard drive fails, the whole damned thing will fail, not individual "modules" that can be sorted. Just buy a high quality hard drive!
Watch this video and tell me where his logic is wrong

Right, so Dave Ramsey gives great advice on average. Or for those who are financially illiterate/don't want to deal with money. And as Doug pointed out, managing warranties can be tedious; and as you pointed out, they can be a rip-off. The average person is likely not sitting down and figuring out the net present value of any of the things they would buy a warranty for. However, as with much of Dave's advice - such as not having a credit card or any credit, only buying used vehicles, etc. - if you are good at managing finances, his advice can be neutral or even negative. There's no reason to not use credit, for example, if you can actually handle it as it actually saves you money if you are responsible about it.

So even if the numbers didn't work out nor even if none of the warranties were claimed, they were still not worthless. The basic question is, "Is it worth $x to have product y guarantee to last z amount of time?" For the average person, this is not the question they should be asking. As Dave points out, if you can't afford to fix a car, you can't afford a car. If you are trying to make a big screen TV last longer, probably not worth it. If you have a business with a budget, it can be worth it to spend an extra x% to ensure things last a set amount of time. It's a convenience. However, it also can work out if you sit down and actually do the math about what the ROI is for a particular warranty given the amount of time it would take to handle it on your own vs. the time it would take to handle the warranty claim. It is often negative, but it is not always negative.

Tl;dr, In the jargon of business, this is the total cost of ownership and, anecdotally, warranties have assisted in reducing this total cost but, on average, they raise the total cost.

[Arrowhead]

However, as with much of Dave's advice - such as not having a credit card or any credit, only buying used vehicles, etc. - if you are good at managing finances, his advice can be neutral or even negative. There's no reason to not use credit, for example, if you can actually handle it as it actually saves you money if you are responsible about it.

The advice Dave Ramsey gives, goes against using credit cards because it contributes to the habit of over-spending. You give them your credit card/insert into the machine, then you put it back in your wallet. When you pay with cash, the cash goes out of your wallet and you never see it again. It's about behavior reinforcement. When you are using your credit card, essentially you are paying with money that you may/ or not have. When you pay in cash, you absolutely know for sure that you can pay for an item. Further, a credit score is one's ability to pay off debt. It has nothing to do with getting wealthy. That's his whole point-credit cards encourage overspending.

Getting back to the extended warranty example of buying 4 items that are $400, each with a $10 extra warranty- one of them goes bad-instead of spending $500, as opposed to $440.
That's bending the math to support a hypothetical scenario, because statistically you don't have a 25% chance of using the extended warranty anyways (let alone being reimbursed 100% on your return).

[Matt K]

The advice Dave Ramsey gives, goes against using credit cards because it contributes to the habit of over-spending. You give them your credit card/insert into the machine, then you put it back in your wallet. When you pay with cash, the cash goes out of your wallet and you never see it again. It's about behavior reinforcement. When you are using your credit card, essentially you are paying with money that you may/ or not have. When you pay in cash, you absolutely know for sure that you can pay for an item. Further, a credit score is one's ability to pay off debt. It has nothing to do with getting wealthy. That's his whole point-credit cards encourage overspending.

Right, so for people who over-spend (financial illiteracy I mentioned before) his advice is great. Spending cash forces you to budget. If you literally don't have cash in your wallet you can't spend it. Instant budget. But for people who can actually plan their expenses, it's literally leaving both free money on the table as well as foregoing the opportunity to, yes, indicate your ability to pay off debt. Debt is likewise not universally bad; it allows for present consumption at the expense of future consumption. So long as that equation is not negative, it is simply a lifestyle choice which is about being wealthy, or at least it is if you factor in your aggregate quality of life to the equation.

Getting back to the extended warranty example of buying 4 items that are $400, each with a $10 extra warranty- one of them goes bad-instead of spending $500, as opposed to $440.
That's bending the math to support a hypothetical scenario, because statistically you don't have a 25% chance of using the extended warranty anyways (let alone being reimbursed 100% on your return).

I mean, that depends on your definition of 'bending'. I didn't use the exact figures but that actually is actually my ratio of all the things I've purchased warranties for. (E.g. I've spent more than $440 but I've saved a proportional amount greater than $60). Note that I don't always purchase warranties, only when they make sense to. And as I indicated earlier, some circumstances do not warrant purchasing warranties. Entertainment devices (TVs, gaming consoles, etc.) not worth it because their value is already negative. For that matter, depending on your logic, you should just never buy entertainment devices because they're always a negative in pure money terms.

However, again, it simply boils down to: "Is it worth $x to get product y to last z amount of time?". Technically, yes, you also have to determine the efficacy of your vendor. I've done that research for when I purchase hardware. If the answer to that is yes, and you have a good vendor, then it is worth it. Full stop. This is especially true if you factor in the cost to the client you are using the hardware for. So in other words, I charge $k for my time and it would take me j hours to solve an issue but .5*j to yank the part and mail it in in event of failure I have saved (k * j) - (k * j * .5). And if I also charge exactly the same price extra to the client, then I've just simply saved k*j.

[Matt K]

Actually, now that I think about it, our department has a failure rate from our primary vendor of laptops of ~66%. Of the three of us, only mine has not had to have a warranty claim. We paid something like 10% extra for each machine for such coverage but it ended up majorly being worth it. So yeah, statistical anomaly? Absolutely; it isn't as rare as you think in environments with low numbers even if problems are evenly distributed throughout the whole population of that product.

[timothy42b]

I make something for $75 and sell it for $100. I find that the failure rate in the field is 5% over 3 years. If I just replace the defunct modules, I have to replace 5 for every 100 I sell. If I sell a warranty for $10, I sell 100 for $11,000 and they cost me $7500. I can expect 5 to fail, costing me another $375. So my build cost is now $7875 and my income is $11,000. Profit is $3125.

I never expected this thread to go here!

Just to add to Bruce's analysis: The manufacturer's profit is actually considerably more. They have $11,000 to invest for 3 years. Properly managed, that income is significant.

(Insurance companies don't make their money on balancing claims versus payment. If claims are even negative, they still do well investing the income.)