Contracts: Enter Cautiously, Cancel Carefully

Ever sign a contract? If you leased a car, signed up for cell phone service, or became a member at your local gym, you did. By definition, a contract is an agreement between two or more parties in which an offer is made and accepted. Though they can be formal or informal, in order to be enforced they usually must be made in writing.

Contracts are serious business – and should never be entered without a great deal of consideration. Take the time to read, understand, and approve a contract before signing. Complete all parts, and never sign a blank contract. Protect yourself even further by having the document first reviewed by a lawyer. Keep a copy of the signed contract.

When a Contract Can Be Canceled
So what happens when you want – or need – to break a written contract? Whether you've found the arrangement you agreed to wasn't such a great deal after all, or you simply can't afford to make the payments and want out, the facts are pretty much the same: you signed a contract and are now obligated to fulfill your end of the bargain. There are, however, several recourses you may have.

The Federal Trade Commission, the Truth in Lending Act, and most state laws give consumers a right to reconsider certain contracts within three days of signing. If you were not told of this right, you may have even longer to cancel it. Cancelable contracts include:

• Door-to-door sales of over $25
• Sales of over $25 if it was made someplace other than the seller's normal place of business, such as exhibits, fairs, and trade shows
• Home equity loans and lines of credit
• Timeshares
• Health club memberships
• Dating services
• Credit repair services
• Dance lessons
• Camping memberships

Some purchases are exempt from this cooling-off period, so be particularly sure you want to go ahead with them before signing anything. These include car loans and leases, real estate, insurance products, and securities.

Still, even if the time frame has lapsed or it didn't apply to your contract, you may have other options to end the deal. There are legal ways to break a contract, called "contract defenses." They are:

• Duress – if you were forced against your will to sign the contract
• Incapacity – if you lacked the mental capacity to understand the contract
• Fraud and misrepresentation – if the seller deliberately misstated the facts about the product or service
• Minors – if you were under the age of 18 when you signed the contract (in most states)
• Unconsionability – if the terms of the contract are outrageous, or the bargaining process was thoroughly unfair

How to Cancel a Contract
When canceling a contract, be sure to do it the right way:

• Sign and date the cancellation form that should have come with the contract. If the seller did not give you one, write your own (just a simple letter stating your wish to cancel will suffice).
• Make sure the cancellation form or letter is post-marked before midnight of the third business day after the contract date.
• Mail it to the address given for cancellation.
• Keep a copy of the cancellation form or letter for your records.

When a Contract Can't be Canceled
If the contract cannot be canceled, you are bound by the terms of the agreement. For example, you may be held responsible for the remaining months' cost of a health club membership or apartment rental lease. Break a car lease or a cell phone contract and you could be faced with a stiff financial penalty. It all comes down to the contract that you originally signed – the details will be in there.

If you fail to pay according to the terms of the contract, the original company may send the unpaid balance or penalty to a third-party collector, or even sue you for what you owe. In either case, credit damage is both highly likely and severe.

The moral of the story is that all contracts should be entered carefully and taken very seriously – they can only be canceled if certain conditions are met. If you have trouble meeting the terms of a non-cancelable contract, make every attempt to work it out with the company before you miss a payment.