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The Simple Dollar

Consider the contract termination fee

Most long-term internet or cable/satellite service contracts offer an escape hatch if you’re willing to pay for it, Hamm writes.

By Guest blogger / November 29, 2012

A DirecTV satellite dish is shown at a home in Palo Alto, Calif., in this May 2010 file photo. Recognize that your internet or cable/satellite contract isn’t iron-clad, Hamm writes.

Paul Sakuma/AP/File


Quite often, when people are locked into long-term contracts with their internet provider or cable/satellite provider or cell phone service provider, they consider themselves to be permanently “stuck” and unable to even consider switching until their contract runs out.

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The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.

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I know that several of my relatives just shrugged their shoulders recently and dealt with a number of very dodgy issues from their satellite provider just because they felt locked into their contract.

The thing to remember is that most such long-term service contracts offer an escape hatch if you’re willing to pay for it. You can usually leave those contracts whenever you’d like, as long as you’re willing to pay a termination fee.

Sometimes, it’s better in the long run to pay the fee and get out of the contract now than to keep paying higher prices for poor service for the next year. 

If you’re in a situation where you’re sure that you can get a much better deal from another provider but you’re locked into a long contract, find out about the details of that contract. Give them a call and ask about their termination fees – or, better yet, read your own copy of the contract to find out what you’d owe if you left early.

Sometimes, those fees are surprisingly low. In a few cases, I’ve seen deals where the new provider will pay the termination fee for you if you switch.

What you need to do, once you know how much the fee is, is to figure out which route is cheaper – the current service without the termination fee or the new service plus the termination fee.

Let’s say, for example, you’re paying $100 a month for a satellite service, but you have 10 months left on your contract. The contract has a termination fee of $250. Another satellite service offers the same channels for $60 per month, which makes for a $40 per month difference.

To stick with your current deal would cost you $400 extra beyond the $60 a month you would pay with the new provider. To terminate your current contract, you’d only have to pay $250, saving you $150 over the course of the next ten months.

Sometimes, you may find that if you’re calling to terminate your contract early, your current provider may offer you a pretty sweet deal to stick around. This has happened to me with cable service in the past, where they knocked about 40% off of our bill for the next year in order to not terminate our agreement.

In other cases, you can get out of a termination fee if the company you’re contracted to has provided poor service recently. Often, this has to be very poor service and you have to document it clearly. For example, if you buy satellite service and you’ve been unable to get any channels for an extended period, that may be grounds for waiving your fee.

The key here is to recognize that your contract isn’t iron-clad. You can get out of it with a fee, and sometimes you’re better off paying that fee (or threatening to do so) than you are to stick with the remainder of the contract. It’s all about what costs you less in the long run.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.

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