How to ditch expensive contracts
Take a glance at your bank statement and you'll see just how much of your household budgets are being spent on contracts you've signed up for – whether it's for your mobile phone, TV and broadband or gym, these regular monthly payments drain a huge amount of cash out of your account every year.
However there are big savings to be made by ditching those deals that aren't providing you with good value for money or that you no longer need. So take a few minutes to look at your contracts and work out where you could save some money.
Review your outgoings
The best way to review your outgoings is to go through your bank and credit card statements to see all the regular payments you are making. First of all, check that you know what they all are. Are there any mysterious debits that you don't recognise? If so, do some research to find out what they are. A quick bit of Googling should reveal which company is taking your cash. If it still doesn't mean anything to you, contact the company and ask what it is taking payment for.
While you're going through your statements, make a list of the direct debits you want to review – those that you may be able to cancel, or at least reduce. Be critical when looking at each one. Has it provided value for money or are you resentful of the expense?
Once you've got a list of debits you want to change, it's time to work out if you can cancel your contract. "The first thing you need to do is consider the terms and conditions and the cancellation terms," says Olivia Cox, a civil litigation expert on myBarrister (mybarrister.co.uk).
There are four things to check:
If your contract includes one, this is the length of time after you initially signed when you are allowed to change your mind and cancel without penalty. If you bought the service online or over the phone, then there is automatically a seven-day cooling-off period, but it can be up to a month in some circumstances.
Minimum contract period
Most contracts have a minimum period, usually 12 to 24 months, during which cancelling will result in penalty charges. If you're within the minimum period, check if there are any circumstances when you are allowed to cancel.
For example, if you have gym membership with a minimum contract period, you're still allowed to cancel in certain instances. If you're ill, injured, lose your job or have moved out of the area for work purposes, you should be able to cancel your membership without paying through the nose.
Think twice before paying cancellation charges. A charge is only fair if you were aware of it when you took out the contract and it is not for more than you would owe if you continued with the contract until the end of your minimum contract period. So, for example, if you want to cancel your mobile phone contract four months early and it usually costs you £40 a month, your provider cannot charge you a £200 cancellation fee.
Do you have to give the provider a notice period before you can cancel? Some contracts will insist on receiving notice you want to cancel a set period before your contract is actually terminated. This can be a very sneaky way of trapping you in - particularly if you are on a contract that automatically renews itself. Fail to cancel with enough notice and you could find yourself trapped for another year.
Make a note of any notice periods. Then if you aren't happy with the price or the service, make sure you tell the company you want out nice and early.
"Ensure you give notice in the correct format - for example, many organisations require notice to be provided in writing," says Cox. "You should also be sure to obtain proof of the written notice provided via recorded delivery and do not rely on the organisation to cancel your direct debit. Instead, confirm when providing notice that you will seek to cancel the direct debit at the end of the notice period."
Can't cancel? Don't assume you're trapped
If you've been through your contract and can't see any way you can cancel, that doesn't necessarily mean you are stuck paying for it until the contract ends.
Speak to the provider and ask whether there are any circumstances you've missed that allow you to cancel. Not all companies are coldly out to get your cash – you may be pleasantly surprised.
"If you're leaving [a mobile phone contract] because of a network issue – perhaps you've moved to a black spot - you may get some discount when buying out your contract. Chat to your provider," says Oliver Folkard, telecoms expert at uSwitch.com.
If you still can't cancel, then ask whether it is possible to change the service you are getting to a cheaper one until your contract ends. For example, you may be able to switch your mobile phone deal down to the cheapest on offer and only pay £5 to £10 a month until the end of the deal. This will mean you have to stop using that sim card or mobile phone, but if you can find a much cheaper deal elsewhere you may still find yourself better off.
Equally, if you feel your television or broadband deal is too expensive, see if you can change the services you get. Sky is usually happy for customers to remove elements of their deal, such as a sports or film subscription.
A final warning
No matter how annoyed you are with a contract, don't just stop paying. If you pay by direct debit or standing order, then you can stop paying whenever you like by instructing your bank. But if you are still within your contract and have no arguable reason for cancelling, the company can come after you for the debt.
If you believe the company taking money off you has absolutely no right to, then by all means stop paying but be prepared for a possible legal fight.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
The period of time you’re allowed, after signing an agreement, to cancel it without incurring a financial penalty. Financial products including banking, credit, insurance, personal pensions and investments are subject to a 14-day cooling-off period (this is 30 days in the case of life insurance and personal pensions). The insurer or broker must refund any money paid by you within 30 days, although it has the right to deduct a reasonable admin charge, and a sum proportionate to the number of days’ cover you had. If you have any related credit agreements, these will also be cancelled.