If you can get a better deal on TV service, but must pay a termination fee with your current provider in order to get it, would you?
It's a tough decision, so we asked telecommunications experts and consumers across the country for their thoughts on early termination fees. Before you make your final decision, read on to discover what they said. Their answers may surprise you.
How Much is a Typical Termination Fee?
As we discovered from our experts, there is a wide range when it comes to what you'll pay for a termination fee, and they aren't all calculated the same way.
"Early termination fees vary by provider," says Elizabeth Phillips, a telecommunications journalist and past cable consumer. She says that many fees are simple set amounts, but not all providers calculate termination fees this way.
"Others pro-rate the amount depending on how long you've been under contract and how much time is left," she says.
So just how much are some of the typical termination fees currently charged by providers?
"The early termination fee for AT&T can be as high as $180," says David Bakke, a consumer-savings expert with the personal finance site, MoneyCrashers.com. He says that price applies to their bundled service which includes TV, Internet, and voice.
Bakke adds that the early termination fee for Dish Network is $20 per month for each month left on the contract, but that the early termination fee for DirecTV can be as much as $480.
When does it make Sense to Pay an Early Termination Fee?
While you may not like the idea of spending money to save money, our experts say it's a good idea in some cases.
"Sometimes it does make sense to pay early termination fees," says Jon Lal, founder of the consumer-savings website, BeFrugal.com. "To determine if it's the best decision in your situation, calculate the cost of paying the fee versus your expected savings."
Do this by totaling the amount you will save each month by switching to a new provider. Compare it against your termination fee. For example, if your termination fee is $100, but you will save $50 each month by switching, you will recoup your fee after two months.
Phillips agrees that running a cost-savings analysis is key figuring out whether or not paying a cancellation fee is worth it.
"I can cite myself as an example," she says. Phillips says her cable bill recently skyrocketed to triple digits - approximately $170 each month for cable plus Internet.
"I wasn't watching even a third of the hundreds of channels I had," she says. Phillips says that her cable company tried to negotiate with her to stay with them for a 12-month promotional fee, but she wanted to cut the cord.
"I purchased a Roku ($100 cost) and changed my Internet provider to one that charges $39.99 per month," she says. Now Phillips subscribes to Netflix and Hulu Plus, and pays approximately $20 each month to watch her TV content. Her new monthly total, including Internet: Just $59.99 per month.
"We saved approximately $1,320.36 in one year - $1,220.36 when you factor in the Roku investment," she says.
And it took less than two months to recoup her termination fee.
"In my case, paying $20 a month far outweighed the one-time termination fee of $200," she says.
Should You Just Wait Until Your Contract Expires?
One simple way to avoid early termination fees is to simply wait until your contract expires. But, the waiting around could cost you more in the long run.
For example, let's say your early termination fee is $150 and you have three months left on your contract at a rate of $100 per month. You can switch to a new provider at a rate of $30 per month. Your choice is to pay $300 for the next three months until your contract ends, or pay $240 ($150 termination fee plus three months at $30.00 per month) to switch now.
As you can see by the example, "there is potential to save money by switching providers, " says Lal.
Of course, waiting until your contract expires could also prove to be the most cost-effective strategy - especially if you're just a month or so away from the end of your contract. However, if you do choose to wait until your contract expires to make the switch, you'll want to be wary of your provider automatically renewing your contract.
Satellite TV subscriber, Kimberly Gauthier, found this out the hard way. Gauthier says that her family's contract ended in February, but that DirecTV extended their contract prior to the end of the month without their knowledge.
"When we called at the beginning of March to cancel the service, they told us that we owed them $365 [early termination fee]. We refused to pay, because our contact was up - we had paperwork to show that it was up," she says.
To Gauthier's surprise, she says that DirecTV deducted the money from their account anyway.
"I was able to explain the situation [to someone from the corporate office] and although she understood our frustration, she said that she couldn't help us either, because we had a contract," Gauthier explains.
The lesson here? If you're waiting for your contract to end to switch providers, call your provider now to make sure they don't renew your contract automatically.
Tips to Avoid Early Termination Fees
"One of the best ways to avoid paying early termination fees is to never sign a long-term contract to begin with," says Bakke. He says that though it may take some negotiating, a no-contract plan is possible.
"I currently have satellite TV without a contract," he says. Bakke says another way you may be able to get your early termination fee waived is if you've had bad TV service, such as dropped channels because of bad weather. "You might be able to file a complaint and get the early termination fee waived," he says.
Another option to getting your early termination fee waived is to ask about a contract buyout.
"If a customer knows that their current provider will charge them an early termination fee, the smart thing to do is ask the other TV provider if they are willing to do a contract buyout," says Phillips. According to Phillips, a contract buyout reimburses the customer for the early termination fee up to a certain dollar amount, and she says this is something you should ask about early on in your conversation with your potential new TV provider.
"Be sure to check with them to ensure you're eligible for a contract buyout before making the jump," she says.
Lal says the amount of time you've been a customer of your current provider can also come into play when looking for ways to avoid early termination fees.
"If you've recently begun your service, there is often a 30 to 60 day window where you can cancel without penalty," he explains.
The Bottom Line
Paying termination fees to switch to a better deal on your TV service could be great, but before you call to cancel, make sure you do the math to ensure the savings will outweigh the cost of the cancellation fee.
Also keep in mind that you'll have to pay some initial fees with your new provider.
"If a customer chooses to move from a cable TV provider to another TV service provider, there may be installation fees," says Phillips.
Another important point to note is that your teaser deal likely won't last forever.
"Be aware of when the promo rate runs out. The monthly cost of service typically goes up quite a bit after that," cautions Bakke, who adds that long-term deals often involve a promotional rate at first, and then you are locked in to a higher rate once the promo is over. "If you can get new service without signing a long-term deal, however, you'll avoid any rate hikes."