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Is it possible to get out of your new cellular contract?

by Brad Spirrison

So you purchased a fancy new smartphone or feature phone during the holidays and are now realizing that the new device is not living up to your expectations. To make matters worse, you are now locked into a long-term contract that will end up costing you thousands of dollars over the next two years.

What to do?

For starters, the major cellular carriers are legally required to offer at least a 14-day grace period after purchase that will allow you to get out of the contract and not pay a triple-figure Early Termination Fee (ETF). If you’re still within that window, which used to be 30 days on many carriers, return your phone and get out of that contract right away. Note that you will still have to pay an activation fee, which is typically less than fifty dollars. But that’s a lot cheaper than a larger monthly charge or steeper one-time cost for something you no longer care to use.

Also, if you subscribe to a smaller or regional cellular carrier, there is a good chance that your plan is month-to-month and you are not locked into anything long-term. Check out the terms and conditions offered by your carrier and your personal contract to learn more.

If you have passed your grace period and are involved with a larger carrier, there are still a few options and strategies to pursue.

Pay attention to the fine print on your contract

Last year Verizon Wireless announced that it would be increasing the “regulatory fee” it charged subscribers from 13 cents per month to 16 cents per month. While this increase was negligible for virtually all subscribers, Consumerist.com, a subsidiary of Consumer Reports, said that even this small pricing change could render a contract void.

“It doesn't matter if it's $50, a penny, or in this case, 3 cents. It's still materially adverse,” noted the report.

Not surprisingly, Verizon subscribers who called to get out of their contracts were met with resistance from customer representatives who said the price increase was immaterial. While more persistent subscribers had difficulty getting out of paying full ETFs, some users were awarded significant account credits while others were offered forgiveness on overage charges.

If your decision to return the phone and get out of the contract is because of a presumed defect or if your device has a poor network connection where you live or work, you might also have a way out. Point out the flaw to your carrier and if you are confident of your case and still not getting any cooperation contact the Federal Trade Commission or Better Business Bureau. Valid claims might convince the carrier that it is easier to get you out of the deal.

Consider trading your plan on the open market

Marketplaces exist that allow cell phone subscribers to try to get others to pick up the remainder of their contracts. Sites like Celltradeusa.com and Cell Plan Depot help those dissatisfied with their plans to see if there are any other takers. You will need to designate the carrier, manufacturer, model and specific plan details like minutes, data options, and time left on contract. You’ll also, of course, need to share your monthly payment amount to see if there are bidders.

While these services typically take healthy commissions, they can be effective and may also save you significant money depending on how far along you are in your contract. Conversely, if you are looking to buy a new phone and don’t want to commit to two years, there are many attractive partial contract options to choose from on these sites.

Live with your plan until it makes financial sense to pay the ETF

The ETFs vary from carrier to carrier, but they are all financially painful. This is particularly true if you own a smartphone with a data plan. There are a different set of fees for what the carriers denote as ‘standard’ and ‘advanced’ devices.

Clearly, the big four carriers do their best to discourage early termination. Though many will cut the fees by around $10 for every month you are with them, even towards the end of your contract, you will probably still face a minimum of around $100 to terminate the agreement early. In those cases, you may as well stay an extra month or two and see it out completely. That way, you might qualify for discounts on new, upgraded smartphones, with which your carrier will inevitably tempt you. After all, they want to do their darndest to keep you on board and sign-up for another two years.

AT&T’s early termination fee is $325, minus $10 per month of service. As a real world example, if you’ve been using the phone six months then decide to end your contract, it will cost you $325 minus $60 (in addition to any fees you've accrued, of course).

Up until August of last year, Sprint’s ETF was a slightly more palatable $200. But now it’s up to $350. Even in the very late stages of your contract you will be expected to pony-up a minimum fee of $100.

Verizon, like Sprint, wants $350 if you end your contract early, minus $10 per month of service. Once again, unless you’re at the very end of your contract, that’s going to be quite a hit.

T-Mobile is the only carrier out of the big four to charge $200 for early termination. This fee will often be lower if you’re getting closer to the end of your contract. It drops to $100 if you have only three to six months left, and $50 if you have less than three months remaining. T-Mobile offers one-year contracts on some devices, which some consumers may prefer, but the initial cost of your smartphone will usually be more expensive with this option.

Back in December 2009 and January 2010, the FCC did a survey because many consumers were still confused by complicated early termination fees. The results here make for interesting reading, and prove that some confusion still remains. Each carrier responded to the FCC’s letters and they’re available to download/read as PDF files. There is an FCC blog post entitled ‘Early Termination Fees, Share Your Story’. It’s a little old now, but perhaps could still be useful for some customers. The FCC also produced a PDF document entitled Early Termination Fees Made Simple.