Prepaid vs. Contracts: Which One is Best for Your Budget?ReviewAdvice

Prepaid vs. Contracts: Which One is Best for Your Budget?

For a long time, cell phone contracts were king. Prepaid plans were for temporary use only, reserved for people who wanted to fly under the radar and kids going on trips away from home. Responsible adults graduate to full two year contracts….right? Actually, prepaid plans are on the rise now that improvements have been made. Top providers now offer prepaid plans on their nationwide networks, let you keep your own number, and pay-as-you-go plans mean you never waste minutes. However, there is one big reason that people still tend to gravitate towards contract plans: the phones.

The Phones

More than pricing, more than deals, and more than terms, the thing that seems to draw people to a particular phone plan is the device itself. Because we are now in a time when the latest and greatest phones are basically personal assistants, people are willing to sign their names on a two year commitment just to get their hands on. The iPhone 5s costs $650 to buy, but with a major carrier's contract, you can get it for $199.99. Sounds great, right? It is an attractive offer but you should be aware that you will end up paying the full retail price of the phone (and then some) throughout the length your contract. So if you end up paying for more than the full price of a phone why sign a two year contract?

Prepaid vs. Contracts: Which One is Best for Your Budget?

Now vs. Later

To get you to sign contracts, cell phone companies utilize an age old sales tactic: "Pay less now, but pay more later." In no-contract plans you pay the full price of the phone upfront but not the activation or access fees. With a contract, you can get a phone for a few hundred dollars less but you have to pay plenty of fees throughout its length. And if you decide to cancel early? Well, cell phone companies are smart; if you cancel early they will cover the cost of your phone in the early termination fee. These contracts are appealing for those who want the latest phones but can't spend over $500 all at once.

Waiting Game

On the other hand, serious phone junkies know the value in paying the extra cash and going with no contract. If you are one of the many tech consumers who find the prospect of a brand new state-of-the-art phone too tantalizing to turn down, then a two year contract may be unacceptable, especially since companies are pumping out new phones every six months. In fact some no-contract carriers offer plans designed around upgrading whenever you want, like T-Mobile's Jump plan. Of course, you still have to pay full price for each device you upgrade to, but you can trade in your old "eligible device" to get credit towards a new one.

When a Contract Works

Does all this mean that contracts are bad and that no one should consider them? No. Contracts can definitely be cost effective when you consider the family plans. When you are trying to pay for multiple lines, a family plan contract may be the most cost effective option.

Check out our full cell phone review to weigh other factors before choosing a provider. If your priority is to save money on a phone plan for a single individual then a prepaid or pay-as-you-go option may save you money in the long run. If your goal is to save money in the short term or with the whole family, explore your contract options.

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