How to Drop Your Cell Phone Contract and Avoid Hefty Fees

photo: JonJon2k8

There are numerous reasons for wanting to drop your cell phone contract.

Maybe you found yourself seduced by a flashy phone, only to get slapped with bad service and pesky fees. Maybe you’re planning to move overseas. Or maybe you just can’t wait any longer to trade that BlackBerry for an iPhone 4 (even though Apple (AAPL) is rumored to be working out a deal with Verizon (VZ) in the not-so-distant future).

Whatever the reason, the good news is that it is possible to drop a long-term cell phone contract without paying the $150 to $200 early termination fee most carriers charge (possibly more if you have a data plan). Here’s how.

Negotiate with your carrier first

If you have legitimate complaints about your service (wanting a shiny new iPhone doesn’t count), start by calling your carrier, says James Walsh, coauthor of Cramdown: Renegotiating Mortgages, Car Loans, Student Laons and Other Finances in the Age of Wall Street Bailouts. “In some cases, they’ll renegotiate your contract into a longer contract with better terms,” he says. “The squeaky wheel gets the oil, so if you’re willing to be assertive about how the service is failing, they can sometimes accommodate you.”

It helps if you’re nearing the end of your contract, since carriers know you’ll soon have to the option to switch and they’ll want to keep your business. “Where you stand in the terms of your existing contract has a lot to do with negotiating leverage,” adds Walsh. “The optimal period is within six months of the end of your contract.”

And if you get lucky, the carrier may agre to lower or even waive the early cancellation fee.

Sign up with a cell phone transfer service

Got nowhere with your mobile carrier? Online marketplaces like TradeMyCellular.com, CellSwapper.com, and CellTradeUSA.com work as online “dating” services, matching current contract-holders with people who’d like to take over others’ contracts. This little-known loophole in cell phone contracts allowing you to transfer your contract has been around for years, but without a network of people looking to do the same, few people were able to take advantage of it. Most carriers allow you to do this for free, but AT&T (T) reportedly charges an $18 fee for the privilege. (The company did not respond to our request for confirmation or comment.)

Once you find someone willing to take over your contract, however, these matching services generally bow out. As Walsh points out, ultimately, the transaction is between you, your cell phone carrier, and the new contract-holder.  Cell swapping sites don’t participate in or take responsibility for the transaction. However, they do offer detailed instructions and help with information, if needed.

Keep in mind, while you will avoid early termination fees from your carrier with a contract transfer, cell swapping sites aren’t free. At CellTradeUSA, for example, people who are seeking someone to take over their contract (the so-called Get Out person) can create a listing for free. Once they start receiving inquiries for people seeking to take over a contract (the so-called Get In person), the site charges a one-time fee to unlock their inbox and read those inquiries, says Eric Wurtenberg, co-founder of the website.

Once the Get Out and Get In individuals connect, they can negotiate the terms of the deal. In some cases, Wurtenberg says, people who are really eager to drop their contract offer a free phone or even a cash incentive via PayPal to sweeten the deal. And while people do list family plans or business plans, those contracts aren’t as easy to transfer as individual ones.

Work out the details with your mobile carrier

Found someone willing to take your contract? You’re not done yet. This person will need to undergo a credit check through your mobile carrier. Fortunately, candidates with low or no credit aren’t automatically disqualified. But they might have to pay a deposit or even get thrown into a different, pre-pay plan, says Wurtenberg. (They would still be able to assume a contract that is shorter than the now standard two years, however: one of the reasons such deals appeal to consumers in the first place.)

There is one caveat to the whole procedure, however: you may not be able to keep your cell phone number. Most carriers “don’t allow number portability when there is a contract transfer,” says Wurtenberg. That’s one reason why professionals who rely on their mobile phones for business (picture mortgage brokers or real estate agents) often choose to pay a termination fee instead of forfeiting their phone number and possibly losing on clients.

On the bright side, once your mobile carrier approves the new person and completes the transfer, you’re off the hook. That’s not necessarily the case with car lease transfers or apartment sublets, where the original lessee can sometimes be held responsible if the other party fails to make a payment.

“With cell phones, because we’re dealing with less financial obligation, there is no secondary liability,” Wurtenberg says.

Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.