Kick that Cell Phone Contract: Save with a Prepaid Plan

by Steve Klingaman on 30 May 2010 21 comments

If you are married to your cell phone, you may not mind paying top dollar for your service plan. For many people, their cell phone has become their primary portal to the world, and that's fine, especially for cell phone companies.

But if you want, you can save big money by going prepaid. Here's how. First, let your cell phone contract expire. Then shop around for a prepaid plan. A prepaid plan, or pay-as you-go, is just that: a plan for which you pay for the minutes, usually by the minute, before you use them. It replaces the standard contract-based plan and the credit check and termination penalty fee that goes with the contract. Prepaid plans have long been popular in Europe, and are gaining ground here.

(But first, what is cheaper and better than a prepaid plan? Being added to an existing family plan. This option will have the most appeal for younger users like college students and 20-somethings. It does, however, require a little family diplomacy and accountability on the part of the user. Mom and Dad don't usually care to rescue you for late payments or lost phones.)

Prepaid wireless plans are the fastest growing segment in the market today. Good plans, like Virgin Mobile, can save you $20 a month on a plan that allows 400 Anytime Minutes per month. However, not every prepaid plan is cheaper than a contract-based plan, so it pays to shop around.

Prepaid Benefits

Prepaid plans can get you out from a monthly bill. Prepaid plans offer no hidden costs, don't have termination fees, and don't play to your weaknesses. You don't have to undergo a credit check. All of these reasons, and more, add up to savings if you get out from under that onerous contract. When you think about it, what other service requires you to sign up for years at a time and then penalizes you when you change your mind?

And it gets worse. Some companies extend your contract commitment for even minor service adjustments!

A half-dozen major carriers offer prepaid plans. These include companies like: AT&T, Net10, T-Mobile, Tracfone, Verizen Wireless, and the aforementioned Virgin Mobile. You can access some of these here.

You want to keep the math simple? T-Mobile charges $100 for 1,000 Anytime Minutes that last a year. If you are in the phone-as-a-last-resort crowd, that will last you a year — at $8.33 a month.

Downsides? There can be a few:

  • Cost-per-minute charges can be higher (at least 10 cents a minute).
     
  • Prepaid minutes expire (but you can keep minutes active for up to a year or more with some plans).
     
  • You have to track your own usage.
     
  • Texting involves extra charges, can be incoming only, or may not be offered.
     
  • As with all cell phone plans, read the fine print first.

Texting

The word on texting is that major carriers don't offer much. But secondary carriers like Straight Talk Wireless, Cricket, and Alltel Prepaid offer prepaid plans with unlimited texting. They cost more, but if texting is your lifeline and you don't want a contract, they've got you covered for as low as $35 a month with Cricket.

If you text often, consider unlimited texting since it can be hard to track your usage.

Select a Plan, Buy Your Own Phone

You can select a company and buy your own phone on eBay. First, choose your plan, because you will need a cell phone that uses the same network. Contact a company representative and ask if you can sign up with your own phone. If the company offers a plan that includes a phone, expect a bit of a runaround before you get a straight answer. Obtain the network type name (like GSM) from the representative. Ask if a supervisor can verify the information if you don't trust the representative. Document the call for reference in the event you get a runaround when you go to sign up with your own phone. Then purchase a phone to match the service provider.

eBay offers a good selection of phones, and sellers usually provide the network information.

Some companies use the GSM network, while others use CDMA. You must know which protocol your intended carrier uses. Any GSM phone you buy must be unlocked. That is, its programming allows it to be used with different GSM carriers. ebay offers a wide selection of unlocked phones, beginning at about $20. Full-featured phones can be had for $50 - $75.

Here is a snippet from Wisegeek.com that succinctly describes the difference between GSM and CDMA:

Carriers operating on the GSM network use SIM cards. In the United Sates, this includes Cingular Wireless, now one with AT&T Wireless, and T-Mobile. Carriers that use the competing CDMA network do not yet use card-enabled phones. These carriers include Sprint PCS, Verizon and Virgin Mobile. The CDMA equivalent of the SIM card — the R-UIM — will be used by these carriers in the future.

Caveats and Contracts

Before buying, compare the cost of a prepaid plan with the provider's one-year contract price and read the fine print. The cell phone industry leads even the credit card industry in consumer complaints, so due diligence is advised.

If you change your calling habits (location, usage rate, texting, going to Canada, whatever) check your coverage to avoid surprises. Consumer Reports says you can save $100 a year by going prepaid. If you change your habits, even slightly, you can save much more than that.

Of course, for all of this to work, you have to get out of your old contract. To avoid paying a fee, stop accepting (or requesting) new phones and do not change the status of your service in any way. Contact your provider to see when your contract is due to expire. Hopefully, the company has a pro-rated penalty fee, so if you are halfway through a contract, you only pay half the full penalty. Or just wait it out. Do your research in the meantime. If you already "own" the phone you have, choose a network to fit it.

Prepaid plans require a little more…planning. But they remain a viable strategy to get out from under the yoke of a big-bucks plan while saving money at the same time — never a bad idea when times are tight or you just want a little more autonomy in your life.

This is a guest post by Steve Klingaman, a nonprofit development consultant and nonfiction writer living in Minneapolis. Read more by Steve:

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Guest's picture
Scott

I realize this won't work for everyone but I hardly ever make voice calls so the T-Mobile 1000 min actually lasts me an entire year. Plus I can check voice mail from another phone such as my office and not pay for those calls. I have a Nexus One and use all the features when on wifi. One thing the author forgot to mention is Google Voice. I can send and receive text messages through there and give out that number to people I don't want calling my phone. Google Voice takes voice messages, converts to text and sends me an email when I've received something. Only a few people have my actual phone#, everything else goes to Google Voice. The downside is that I don't have 24/7 data plan, but since I'm online all day at work and on wifi at home, it all works for me. Plus I found a GPS service that downloads maps to my phone so it's useful even without a data plan.

Guest's picture
Oscar

If you are looking for a prepaid plan to save you money on your cell phone then I would suggest trying out Net10. I switched about a year ago and have saved a lot of money. They offer plans for only 10 cents a minute for nationwide coverage and a good selection of phones.

Guest's picture
Guest

my sons use net10 and love it, they have great coverage and probably the lowest pre-paid price. But they spam your phone with ads and will not stop.

Guest's picture
catastrophegirl

i've been using virgin mobile prepaid for years. i used to buy by the minute but as they added month to month no contract plans i switched to that.
with several of their month to month plans you can add on unlimited texting which includes picture messages for $10 a month. i text a lot. and with the unlimited picture messages i can use the camera on the phone and email the messages to myself.
this is very important because the one thing that annoys me about virgin mobile is you have to use their phones, and their proprietary software is on the phones and it disallows use of the data cable. this means without that unlimited plan i'd have to pay 25 cents a picture to email them to myself or store them on virgin mobile's album upload page.
but considering that about a year ago they started offering a 'pink slip' deal where if you prove you lost your job you get a free month of phone service and in the past year the cost for the month to month package i get has gone DOWN twice, by about $5 each time... i'm very happy.

Guest's picture
Miguel

I switched to prepaid because my usage went down significantly. I canceled my contract at Verizon Wireless and found that NET 10 was perfect for me. I also downgraded my qwerty keyboard phone to a regular flip phone. I got a great deal on their through NET 10. I got a cellphone, 300 minutes included upon activation, a 200 minutes card and a free accessory kit all for around $19!! It lasted me more than a month so I got the same deal again and I'm planning to re-sell these phones to keep the costs even lower. It's a way to go for me.

Guest's picture

I think this option would be well worth looking into for most of us older cell phone users. I typically use about 200 minutes per month, which is not very much.

I never text--ever.

Having said that, it looks like ths option would save me money.

However, I would never sign a contract, I would definitely read the fine print, and I would probaly call up and ask about 5000 questions of someone before going thru with it. The 5000 questions being about hidden charges, hidden fees and so forth.

But overall, it could be a money saver!

Guest's picture
Sadie Mae

Thanks for the article. I am having a hard time giving up my contract phone with AT&T. I need to bite the bullet and do it. I have been looking at TMobile and Pure TalkUSA. I am leaning more towards Pure TalkUSA.

Guest's picture
Guest

net10 will spam your phone with ads, otherwise they are a good value.

Guest's picture
Lisa

Due to various complications of contract, we have both a family plan and a prepaid plan. At one point, both were with AT&T and so the difference in coverage was very obvious--the prepaid AT&T phone consistently dropped and MISSED calls (they would go straight to voicemail even though the other phone had reception), which we haven't experienced with contract AT&T.

Guest's picture

Aside from the handset subsidy on postpaid, as the selection on prepaid continues to improve, prepaid will be the most logical choice for most people. One only needs to look at Europe to see that prepaid makes a lot more sense!

Here's a free resource to compare plans:
http://www.prepaid-wireless-guide.com/no-contract-cell-phone-plans.html

Guest's picture
Katherine

When me and my husband got married last May we decided to cut our phone plans-- our Verizon plans were basic but costing us 59.00 each a month. We experimented with a few prepaid phones and we settled on the amount that would be awesome for us. I'm with Virgin mobile-- they just came out with a plan that has unlimited data and text and 300 anytime minutes a month for 25 bucks; my husband is with Straight Talk with 1000 minutes, 1000 texts and 30mb of mobile web access for 30 bucks. The minutes also roll over-- he's been on it for a few months now and has a little over 58 hours of talk he can use anytime. Virgin uses the Sprint network-- Straight Talk uses Verizon. I honestly don't know why people go the contract.

Guest's picture
Guest

Duke

I use Page Plus it is nationwide, ( it piggybacks on verizon network) there is no service contract, I have used it successfully in all U.S. states, it includes unlimited phone, texting, and some internet for 44.95 a month. You can use your current phone if you get it jailbroken and synced or get a gsm phone that has the features you like. Personally I am looking into the android phones! Oh yeah and there is no fee for discontinuing service (bonus)!

Guest's picture

My husband and I have used prepaid phones (Virgin) for about 7 years. Our costs average about $10 each/month. FOR US, it works great. We don't talk on the phone much and text infrequently, we also have a land line. Most of our non face to face communication is via the web. Obviously, if one is a big phone user, it may not be an economical choice. Thanks for bringing up the topic.
Barb Friedberg

Guest's picture
Daniel

I just made the switch last week from contract cell provider to "prepaid". In my case, over the past year, I've been in contracts with Verizon, Sprint, and AT&T. In each case, I terminated my contracts, but I was able to recoup the early termination fee because I would sell the phone on eBay.

Virgin Mobile just released a plan called BeyondTalk and that is what convinced me to switch. I paid $80 for a phone, and now pay $25 per month for unlimited Web, unlimited texting, and 300 voice minutes per month (they have more expensive plans that increase the number of voice minutes). Granted, the phone isn't the best, and pales in comparison to the iPhone I just switched from, or the Palm Pre that I used to have. But, I am saving about $55.00 each month, that I'm now putting towards my debt payoff program.

I am learning that if I just buckle down and make sacrifices, I'll come out ahead in the long run. It's not always easy, but this was too good of a situation to pass up.

Guest's picture
Daniel

P.S. I should add that the virgin Mobile plan is not a contract - I can cancel at any time I want. And they have better phones than the one I purchased (even a Blackberry).

Guest's picture

Prepaid is obviously the better bargain. The big companies like to overcharge you for their expensive service providers.

Guest's picture
Guest

I might be switching to Straighttalk. (www.straighttalk.com) They seem to be the best plans for the money.

Guest's picture
Jack Lane

If you aren't set on getting a prepaid phone, think about this: Straight Talk's Unlimited plan is $45 a month for unlimited text, talk, and web. The prices can only go down from there.

Guest's picture
Nancy

I have heard a lot of hype about Straight talk. What phones do you recommend I get if I am a heavy texter and like to take a lot of pictures. I am looking at the straight talk unlimited plan but am having trouble choosing the right phone for me.

Guest's picture
Steve

I've been using straight talk for two years and love it, Simple monthly $35 comes with 1000 minutes and 1000 texts, but now ST has Android phones with unlimited data for $45 a month. That beats a contract any day, since unlimited contracts have gone the way of the dinosaur.

Guest's picture
TingMobileUser

I'm not a salesman for Ting but I switch to them and cut my bill down to $15 dollars per month. This is not a gimmick. They are an MVNO on top of Sprint so it's a great network. You pay for what you use, not for unlimited everything even though your use obviously has limits. Check them out at https://z1nps28j8.ting.com/ to save 25 dollars on a device purchase or at ting.com to not save 25 dollars.

Just a thought I would share.