The 5 Worst Consumer Scams to Avoid This Holiday Season

Consumers should be particularly vigilant about scams during the holiday season.
By John Persinos ,

Marketing balderdash seems to permeate every aspect of our lives. Getting bamboozled into buying products that you don't really need seems commonplace. 

What follows is a list of egregious examples that regularly confront consumers. Call these the five most insidious consumer rip-offs. It's especially important to be vigilant now, as the holidays get underway. The season of giving also creates opportunities for hucksters.

1. Paying for credit reports.

Some companies will use scare tactics to stoke anxiety about your credit rating, and then announce that by giving them a fee, they'll provide you with your all-important credit report. You can go online and find many companies that will provide the same service for free.

2. Hiring a firm that promises to eliminate debt.

Organizations offering these services advertise frequently on late-night television. The ads sometimes start with a montage of average people, tormented by too much debt. A distinguished-looking fellow in a suit may appear and in resonate tones, promise to slash your debt and payments by dramatic amounts and have any fees or penalties eliminated. All you need to do is call the 1-800 number on your screen and salvation from debt is yours.

Here's the reality: Debt management companies charge big fees and can't eliminate your debt; rather, they may merely repackage or consolidate it. At the end of the day, you still have the same debt, but now, on top of your debt, you've just spent a large fee to a company that merely played paper games with it.

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

3. Choosing a credit card that charges a high interest rate.

There are credit cards with single-digit interest rates. That's why you should be particularly wary of credit cards that offer sexy deals but which invariably come with interest rates of 18% or higher. Some cards even charge interest as high as 30%.

Notable in this category are airline frequent flier cards or department store cards, which tend to incur high annual fees and exorbitant interest rates. If an airline credit card promises, say, 25,000 frequent flier miles as an incentive to sign on, it might not be worth the extra interest you're likely to pay every year.

Do your homework and search for the best deals among the major cards offered under the aegis of Visa , MasterCard, American Express, or Discover Financial.

4. Purchasing 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 or other. If you're suddenly unable to pay, the insurer pays for you.

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

5. Buying extended warranties for consumer electronics.

A casual walk through Best Buy or Wal-Mart Stores will tell you the obvious: Consumer electronics are undergoing commodification and 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 can they boost razor thin margins? By selling expensive extended warranties, of course.

For example, don't fall for your cell phone company's marketing about the horrors of a lost or broken phone. 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."

Along similar lines, this group of 29 dangerous stocks is a terrible place for your money today. In fact, using a little-known financial "health test," the stocks on this list are a failure in every category! Click here now to make sure you don't make the mistake of owning one.

John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.

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