Christian Financial Advice and Biblical Stewardship
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You Signed a Contract -- Now What?

  • 2011 22 Jun
You Signed a Contract -- Now What?

I get plenty of mail from readers wanting to know how to break their [cell phone, satellite TV, gym membership] contracts but, lately, those questions have increased dramatically for two reasons:

1. People are looking for expendable expenses they can eliminate because they have lost their jobs or they're concerned that they might.

2. Consumers sign contracts too casually these days without regard for the fact that they don't know what's going to happen in the future.

Let's consider why a service provider pushes hard to get you to sign on the dotted line. Take a cell phone, for example: If you buy that phone outright, it might cost $300. That's a single sale. If they can get you to sign up for a two-year contract for $89 a month, they're happy to throw the phone in for $99. Sure, the sale is reduced by $201, but they get to add you as an asset on their balance sheet under "Accounts Receivable." They have a legal right to $2,136 of your money over the next two years. You have just contributed to their profits and to the company's net worth.

You, on the other hand, do not know for sure that you will be able to pay $89 every month for the next two years. So why did you sign? It's likely that you didn't think about it. After all, isn't everyone signing cell phone contracts these days?

Contracts are legally-binding agreements that require payment in the future. That's what sets them apart from other types of agreements or promises. When you sign a contract, it's a serious commitment. You have a legal obligation to abide by its terms.

If you find yourself in a pickle with a contract, pull it out along with a magnifying glass. Read it thoroughly. Look for terms like "early termination," or "buy-out." Many consumer contracts these days have these kinds of provisions built-in. If you find nothing, contact the company. Ask under what terms you could be relieved of your contract. Then, get ready to negotiate.

One reader wrote that her satellite TV contract has an early termination allowance. To act on it, she would have to pay $12 for each month remaining on the contract, in one lump payment. She has eighteen months remaining, and her regular monthly charge is $39. Should she terminate? That depends on her future plans, but given the information she offered, my answer is yes. For $216 now, she can avoid paying $702 over the next 18 months. She's fortunate to have found that termination clause.

The time to give a contract serious scrutiny is before you sign it, not six months into the term. Then, it might be too late. Ask yourself this: How do I know I will have the money to pay this contract a year from now? If you do not have a good answer, keep looking until you can find a company that will provide the services you need on a pay-as-you-go basis.

Copyright © 2009 Mary Hunt. All rights reserved. Permission to reprint required.

Check out Mary's recently released revised and expanded edition of The Financially Confident Woman (DPL Press, 2008).

Debt-Proof Living was founded in 1992 by Mary Hunt. What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt. Today, "Debt-Proof Living" is read by close to 100,000 cheapskates.  Click here to subscribe. Also, you can receive Mary's free daily e-mail "Everyday Cheapskate" by signing up at