5 Financial Products That Are Absolutely Worthless

By John Persinos
July 12, 2011

Marketing jargon seems to permeate every aspect of our lives. In fact, getting pressured into buying seemingly valuable products you don't really need is a long-standing way of doing business in America. Snakeoil, anyone?

Financial products are no exception, so here's a list of those commonly pushed by salespeople on TV and in retail stores around the country. Read on to see why, in almost every case, you should say "no" to these five worthless products.

1) Any credit report that is not free

Some companies use scare tactics to stoke anxiety about your credit rating or mistakes on your credit report. The secret of these sites is that they'll let you access your credit report for free, but then they automatically enroll you in a credit monitoring service... for a fee.

By law, credit bureaus must send you one free copy (at your request) of your credit report each year. And if you have been denied a credit card because of information on your credit report, you're entitled to another free copy within 60 days of the denial. In most other circumstances, you do have to pay the credit bureau for a copy of your credit report, but before you do, make sure you've maxed out all your opportunities to get it for free.

[Click here to read more about The Hidden Costs of "Free" Credit Reports]

2) Debt management plans

These scams are all over late-night television these days. The ad usually starts with a montage of average people tormented by excessive debt. A distinguished-looking fellow in a suit suddenly appears and promises to slash your debt by dramatic amounts. All you need to do is call the 1-800 number on your screen and salvation from debt is yours.

Here's the reality: these companies charge high fees to merely repackage and consolidate your debt. They don't actually eliminate anything, and at the end of the day you're left with the same principal balance, a longer repayment period, and a future filled with finance charges.  Plus, on top of your original debt balance you've added a large fee payable to a company that basically just shuffled some paper around for you.

The same applies to companies that promise to help you escape your responsibilities to the IRS. Slash your overdue taxes simply by calling that 1-800 number? It can't be done.

3) Special credit cards

When choosing a credit card, always look for the lowest possible interest rate. If you shop around, you can find a credit card with an interest rate in the single digits. That's why you should be particularly wary of credit cards that offer sexy deals but which invariably come with very high interest rates of 18% or higher. Some cards even charge interest as high as 30%, a usurious rate more associated with Mafia leg breakers than banks.

Notable in this category are airline frequent flier cards or department store cards, which tend to charge high annual fees and exorbitant interest rates. If an airline credit card promises 25,000 frequent flier miles as an incentive to sign on, it's almost never worth the extra interest you're likely to pay every year.

4) Payment protection insurance

This financial product preys on consumers' anxiety about losing their jobs. In theory, it seems like a good idea: buy some extra insurance to cover your payments on personal loans, mortgages, credit cards, etc. If you're suddenly unable to pay, the insurer makes your payments for you.

But there's a catch. Payment protection is expensive and often riddled with loopholes that allow the insurer to wriggle off the hook. In fact, the cost of the insurance every year can potentially exceed the total cost of the interest payments. And chances are you won't need it anyway. File this financial product under "bad deal."

5) Extended warranties for consumer electronics

A casual walk through Best Buy (NYSE: BBY) or WalMart (NYSE: WMT) will tell you the obvious: Consumer electronics are undergoing deflation, as manufacturers shift facilities to dirt-cheap locations and aggressively compete on price. Consumers are accustomed to inexpensive cell phones, stereos and television sets, and they'll push back if prices go higher, especially in today's weak economy.

Hence the manufacturers' dilemma: How to boost razor thin margins? By selling expensive extended warranties, of course.

For example, you're likely to hear any cell phone salesperson go on and on about the horrors of a lost or broken phone. Don't fall for it. The premiums for insuring your phone tend to be ridiculously high (as much as $150 a year), and besides, your homeowner's insurance probably already covers it. This same principle applies to extended warranties for all types of electronic products.

Don't forget, most products come with a manufacturer's 12-month warranty. So, the next time a cashier tries to twist your arm to buy an extended warranty, just say (very decisively): "No thanks."

While none of these products are illegal, they are rarely beneficial to anyone but the person trying to sell them to you. But as I'm sure you know, there are plenty of other ways people will try to separate you from your money. It always pays to be diligent, so click here to learn how to Protect Yourself From Today's Most Destructive Scams