A problematic prepay

I was going over my old files the other day and found a bill for “Sunrocket,” a long-defunct Internet phone company that charged me $244 for a year’s worth of service and proceeded to close shop a couple of weeks later. They just disconnected service and stopped answering the phones. No message, no warning, nothing. I was literally robbed, but luckily I had paid with a bank card, so I initiated a dispute and my bank account was refunded some months later.

Done in by the Internet

A year after the Sunrocket debacle I moved towns and got a contract for DSL with the now-extinct ISP known as Qwest. I needed reliable service, so I purchased a business-class connection that cost over $100 per month with a two-year contract. The connection was bad, nevertheless, and every month or so a technician had to come over and fix something, or I needed a modem replaced. I had to spend hours every week with the outsourced tech support staff who would regurgitate me scripts over a noisy phone line. It was horrible, but I had a contract, and I endured.

Halfway through that contract the beleaguered economy of 2009 forced me to move house. Qwest could reconnect me at the new location, but I needed to spend the summer in a cabin with no electricity, so I couldn’t provide an immediate address to move the service. I asked to put the service temporarily on hold, but Qwest refused. I asked why not, they said they did that for residential customers but not for businesses, and I had business service. Ayayay! I decided to end the dysfunctional relationship and cancel my contract on the spot, and I was hit with a $500 bill for my decision. It hurt, but it was better than paying $300 for non-service during the summer and then having to endure one more year of torment at their hands.

Locked in a cell

Earlier this year my wife lost her cell phone at a party. It was an awesome shindig up to that point, but having to call customer service in the wee hours of the night when you think your phone was stolen is no fun. The next day she went to the Verizon store to see how to replace the missing gadget. The only option was to use the “insurance,” which would provide her with the same old device for about $100. [Disclaimer: I have nothing to do with this phone or insurance plan or any of that, and I'm not defending it, I'm just telling you what happened.]

Her phone was due for an upgrade in a couple of months, so it seemed dumb to pay $100 to have the same old thing sent to her, but the company couldn’t give her an upgrade just yet, not even if she paid for it. I suggested she temporarily suspend the service, but the store said they’d charge her something like $100 per month for non-use of the phone. (!!). This was for a phone that was presumably “free” as a part of a family plan. Go figure.

Lucky for us, we returned to the party house for a search-and-rescue expedition, and with the help of daylight and some needed serenity I found the phone buried somewhere in the kitchen. Oh, sweet relief! We had dodged a bullet (no need to bite this time), but I learned about the Kafkaesque absurdities of cell phone contracts. As a result when I finally broke down and decided to get with the times, I purchased a non-contract phone even if the initial payment was higher.

Caution about contracts

I understand that contracts are part of the basis of civilization and are what allows our economy to function. They are also an important business tool. However, customer contracts are a matter of course in some industries, but they tend to be bad for several reasons.

First, as consumers, our only power is that of choice–we vote with our dollars. When we lock our money for the long term, we surrender our power as consumers. “I hate your sucky customer service,” you say, and they hit you with a bill for the privilege of escaping their bad service.

Second, the law is meant to protect everyone equally, but it’s hard to enter a contract with a large corporation as an equal. Unless you’re part of a class-action lawsuit, you lack the firepower to beat a large company in court. There is, of course, the option to use the mosquito strategy and fight them in small claims court. But who has the time for court disputes? Don’t you have work to do?

Third–and this is straight personal finance–contracts turn your wants into needs. If you follow the Balanced Money Formula (I do), you should have at most half of your budget committed to expenditures while you split the rest between enjoyable wants and prudent savings. When you turn HBO from an optional pleasure into a financial obligation, you’re shooting yourself in the foot.

Fourth, and related to the previous point, nobody knows the future and it’s good to stay flexible in the face of change. What do you do when your cable company drops your favorite channel? What if your cell phone provider starts to give you headaches? Tracking a few solid commitments and tracking fewer things owed to us is less headache-inducing than tracking myriad junk promises. I know and like my car insurance company–enough that I am willing to “marry” them with a single payment six months at a time; it just makes my life easier. Otherwise, I don’t care who you are or what discounts you offer, I’ll take a month at a time, please, and we’ll see where this relationship takes us.

Readers, do you have any consumer contracts right now? Are they a trap you can’t escape or have they served you well? Do you have any good experiences or horror stories with them?

GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.