If you bite, you're gambling that the product will malfunction or break after the manufacturer's one-or-two-year warranty ends, but before the one-year extended coverage expires. And you'll usually lose: 65 percent of car owners who ante up the $1,000 or so for an extended-service contract recoup only $700 on repairs, says Consumer Reports.

• The best advice: Retailers profit by as much as 80 percent on these contracts. Bank the money you would have spent on an extended warranty. “Everything you own isn't going to fall apart at the same time,” says Travis Ford, consumer educator at the Missouri Attorney General's office, “but if one thing does, you're covered.”

Watch for these red flags:

• Claims that you've won a "free" prize or a fee to collect your "winnings" — for a contest you haven't entered.

• Companies that offer freebies to entice you into attending a high-pressure sales presentation, where they may be more incentives. You could lose sight of just how much this "free" deal could cost you.

• Promises of insider discounts, special deals, or secret information offered exclusively by a firm. Often you find better offers on your own.

• Salespeople who pressure you to make an immediate financial commitment or to sign a contract you haven't read.

• Contracts or forms that are hard to understand. Even minor mistakes in filling out the form may be used as an excuse to avoid honoring the agreement.

• Companies that won't put their prices or promises in writing. A legitimate firm stands behind its deals and wants to give you what you need to make a smart decision.

• Firms that do not provide contact information or that provide only an e-mail address or a post office box. After all, if you can locate them, authorities can too.
  
  

For more consumer financial advice, visit Reader's Digest Web site.

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