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Before You Sign a Cell Phone Contract: What You Need to Know

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Ryan McVay / Getty Images
Ryan McVay / Getty Images

Signing a service contract with a cell phone carrier is often necessary to get the cellular service and the cell phone that you want. But committing to a two-year contract can be intimidating, even if you're not a commitment-phobe.

Don't take the commitment lightly. After all, you are agreeing to pay what can be a large sum of money to this company every month for the next 24 -- or more -- months. Over time, you may spend hundreds or thousands of dollars on cell phone service.

And, once you've signed on the dotted line, it may be too late to go back. So before you take that step, do your research. Here's what you need to know before you sign up for cellular service.

Cancellation Options

Before you sign up, find out how you can get out of the contract, should you need to. Most companies will fine you if you decide to terminate the contract early -- and those fines can be as high as several hundred dollars. Find out exactly how much you'll owe if you need to bail, and find out if the fine goes down over time. You may be fined $360 for cancelling within the first year, for example, but that fee may get lower each month after that.

Trial Period

Some cellular carriers offer a limited trial period during which you cancel your contract without paying the penalty fee. Find out if you carrier offers this trial, which is likely to be no longer than 30 days -- if that.

If you do get a trial period, use the time wisely. Use your phone in as many different locations as you can, such as in your home, on your usual commuter routes, and at any places you frequent, so you'll know if your service works where you need to use it. If it doesn't, you may need to switch carriers -- something that can be very difficult to do later on.

Bottom Line

You sign up for service that costs $39.99 a month, but when your bill arrives, the total you owe is closer to $50 than $40. Why is that? One reason is the taxes and fees that can't be avoided. Before you sign your contract, ask your carrier for an estimate of your actual bill, with taxes and fees included, so you'll have a better idea of how much you'll really be paying each month.

Hidden Fees

Not all of the "fees" on your cell phone bill are mandatory, and you should be on the lookout for any services that you didn't authorize. You may find yourself charged for cell phone insurance or a music service you don't need. And if you don't need them, you certainly don't want to pay for them. Ask up front about any of these additional services, and authorize only the ones you want to use.

Overage Fees

One of the best ways to save money on a cellular plan is to only pay for as many minutes as you need. If you're not a frequent caller, you may not need to opt for the unlimited calling plan. But you should make sure you're paying for at least as many minutes as you plan to use each month, because going over your allotment can cost you a whole lot. You'll be charged a per-minute rate, which can be sky high, for each additional minute you use. Find out what that rate is, and do your best to avoid paying it. Bumping your plan up to the next level might be more beneficial.

Data and Messaging Services

If you use your phone for messaging or surfing the Web, you also should purchase an adequate messaging and data plan. If you're a frequent texter, for example, you'll want to make sure your messaging plan has you covered -- otherwise you could be charged on a per-message basis, which can quickly add up. And remember that you can be charged for incoming texts, sent from well-meaning friends and colleagues, if you don't have a texting plan. So make sure you're covered.

You also should make sure that the data plan you select meets your needs; if you go over your data allotment, you can end up paying a pretty penny for every megabyte of data you upload or download.

What Kind of Minutes Are They?

If you don't opt for an unlimited calling plan, your carrier may offer you unlimited calls at certain times of the day or week. Some offer free nighttime calling, for example, while others offer free weekends. Before you start dialing your friends, though, make sure you know when those nights and weekends start. Some carriers consider anything after 7pm nighttime, while others don't turn the meters off until 9pm.

Roaming Charges

Roaming charges, which are incurred when you venture outside of your carrier's regular service area, are becoming less likely today, as more and more people opt for national calling plans. But if you opt for a cheaper regional calling plan, you could get hit with a hefty roaming charge if you travel with your phone. Find out what constitutes your calling area, and what you'll be charged if you venture outside of it.

Traveling internationally with your phone can be an expensive proposition -- but that's only if you're phone will work overseas. Not all carriers offer service that is compatible with the technologies used in other countries. And even if they do, you're likely to find that any calls you make or receive overseas are very, very pricey. If you're a frequent flier, ask about your international calling options.

Upgrade Options

While you may be satisfied with your shiny new cell phone right now, remember that you're not always going to feel that way. It may lose its appeal before your service contract is up, or it may get lost or broken. Find out what options you have for upgrading or replacing your phone, and what kind of fees you'll be charged in those situations.

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