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Back when houses were making money hand over fist and everyone looked like a stock market genius, who had time to read all the fine print on that other stuff -- you know, like cell-phone contracts and car lease clauses?
Now that the real estate section of the newspaper reads like the obituaries, and even the mailman is reluctant to deliver those quarterly brokerage and retirement account statements, it's time to deal with those money maladies that you could afford to let slide when times were better. Here are four fixes for a few of the biggies.
Stop life insurance premiums from driving you to an early grave
Escaping the shackles of a shoddy life-insurance policy before your contract is up can be a snap -- as long as we're talking about term insurance. Simply cancel your policy, and stop paying premiums.
If, on the other hand, you hold a policy that offers permanent coverage, your punishment for early cancellation is a nasty surrender charge. These fees can be brutal -- not budging for years and costing up to 10% of the policy's payoff value. Thus, many people simply stop paying their premiums and kiss whatever money they've paid into the policy goodbye.
For those who haven't built up any cash value, a cut-and-run approach may be the soundest exit strategy. But if you've had the policy for 10 or 15 years and have built up a decent amount in cash value, bail out by either transferring into a low-cost annuity with a 1035 exchange or converting to a paid-up term insurance policy tax-free with your current company. But don't get sweet-talked into another high-fee product, and make sure you're eligible for a replacement term policy.
Hang up on a dud cell-phone contract
That snazzy phone you got for free makes a pricey paperweight if the service contract turns out to be a bad fit. I don't blame you for considering tin cans and a ball of twine, especially when faced with $175 to $250 in early termination fees -- for each phone, if you have a family plan! And even though carriers like Sprint Nextel (Nasdaq: S ) and Verizon (NYSE: VZ ) may let you prorate your early termination fee, it can still be more than you want to pay. So get out your reading glasses, and cozy up to your contract.
Look for the "materially adverse change" clause, which allows customers an early no-fee exit when the carrier changes terms -- say, for example, it adds administrative fees or increases its texting charges. The catch is that you have only 14 to 30 days to bail. If that window has closed, head to Celltradeusa.com to swap out of your contract. Registration is free, and unlimited access to potential buyers is $19.99 -- good until you finally unload that contract.
Put the brakes on a crummy car lease
If you're getting taken for a ride in a pricey car lease, stop watching the odometer and head to LeaseTrader.com or Swapalease.com. These services match you up with someone who will take on your auto albatross and thus steer you clear of pricey termination fees. Paying a few hundred dollars to hand over the keys sure beats the alternative of shelling out $300 to $400 in dealer disposition costs and having to pay the remaining contract in one lump sum.
Dump that overpriced, underperforming annuity
If you own an annuity and its return is severely lagging its benchmark (e.g., a fixed annuity versus a bond index), or if the company behind your annuity is looking a little sickly, then it might be time to plan an exit strategy.
Since dumping an annuity early triggers surrender charges, the longer you wait to bail, the less you'll pay in penalties. In the meantime, consider partial annual withdrawals (e.g., 10% per year), which some institutions allow sans surrender fees.
If you're 59.5 or younger (you look great to me, by the way), avoid the tax consequences of cashing out -- both deferred income taxes and that brutal 10% gains penalty -- by making a 1035 exchange into a lower-cost annuity (try Vanguard, Fidelity, or T. Rowe Price (Nasdaq: TROW ) ). You'll still pay surrender charges, but you'll avoid triggering a taxable event. Just make sure the company to which you're moving your money handles the transfer.
Another bonus: You'll save buckets in fees. For example, the Vanguard Variable Annuity has a mortality and expense charge of 0.45% as well as low fees on the funds within its plans. You'll make up those surrender charges quickly -- in a single year if your current annuity charges 2% -- which makes parting ways much less painful.
If you're worried about the company's solvency, you do have some insurance on your investment -- from $100,000 to $500,000, depending on where you live -- via your state's Guaranty association. Here's more about the good, bad, and ugly of annuities.
More money triage
If you're suffering aftershocks from financial fumbles, don't waste energy kicking yourself. Start dealing with them now. For more advice, see: