Ways to Save Money

This Couple Saves $1,200 a Year Using Prepaid Cell Phone Plans

Updated September 13, 2015
by Vic Lim
Contributor

One of the easiest ways I’ve found to cut costs was on our cell phone bill. When my wife and I were with Verizon over a year ago, we spent about $160 a month on our cell phone plan.

However, when our daughter was born, I wanted to find ways to cut costs without sacrificing our quality of life. We got rid of our cell phone contracts, bought unlocked phones and signed up for prepaid plans. Now we spend only $63 a month, saving almost $100 a month or $1,200 a year.

This is why I will never get a cell-phone contract again.

1. Cell Phone Contracts Aren’t Actually a Good Deal

The standard two-year cell phone contract doesn’t benefit the consumer at all.

I hear it all the time — people wait for their phone contracts to end so they can renew them and get a new phone at the cheaper, subsidized price. For example, an iPhone 6 on contract starts at $200 while buying it off contract is $650, according to Apple’s sales page. Buying a phone for $650 sounds crazy, right?

That’s exactly what AT&T and Verizon have wanted you to think for years. They don’t give you a $450 discount because they’re being charitable. They make up that difference by charging you higher monthly fees while locking you in as a customer for two years.

It’s worse for people on a family plan – everyone has different contract end dates which makes it even harder to leave your provider. The great thing about being off contract is I’m always shopping around for that better deal, and if I find one, I can jump carriers right away.

While Verizon may have just announced they’re getting rid of two-year contracts, not much will change as a result. While their monthly service plans may be cheaper, customers will now have to pay separately if they want to purchase a brand-new phone, likely in 24 monthly installments.  

But here’s the thing: Verizon phones run on a CDMA network, which means you can’t use them with other providers should you decide to move. AT&T, T-Mobile and most prepaid providers use GSM networks, which make it easier for customers to switch providers.

So even though Verizon might not technically offer contracts anymore, purchasing a phone through them essentially locks you into their service. Thanks, but no thanks, Verizon.

2. I Can Get a Cheaper Monthly Rate by Going Prepaid

Here’s a look at the plans my wife and I use:

$35 Cricket Wireless (Wife)

  • Unlimited texts and calls
  • Unlimited data (2.5GB high speed)

$30 T-Mobile Prepaid (Vic)

  • Unlimited data and texts (5GB high speed)
  • 100 calling minutes
  • Save an extra $2 buying refill cards online using a Target Redcard and Ebates

If you’re switching to a prepaid provider, I highly recommend Cricket. It’s owned by AT&T, so you’re basically getting AT&T service, just at a cheaper rate. Cricket’s 4G data speed is capped at 8 megabits per second, but I don’t notice much of a difference between it and my T-Mobile LTE speed.

My T-Mobile prepaid plan only has 100 calling minutes, which I get around by using Google Hangouts to call over my data connection. It makes regular calling a little less convenient, which is why my wife sticks with Cricket, but I save an extra $7 a month, which is $84 a year.  

3. I’m Less likely to Buy a New Phone

I get it, I get it. We all want the latest and greatest. We get sucked into the marketing that we need “The Next Big Thing

But really, nothing new has really happened since phones went from 3G to 4G. While screen sizes have gotten a little bigger and cameras have gotten sharper, nothing is so groundbreaking it compels me to get a shiny new phone. I have a perfectly fine iPhone 5s I intend to keep as long as possible until it slows down to a crawl or my daughter breaks it. (Did I just jinx myself?)

4. It’s All About About Total Cost, Not Monthly Cost

Whenever I tell someone to go off contract, the biggest issue they raise is they don’t want to pay full price for a brand new phone. Shoot, I don’t either!

You’re better off buying a used phone on Craigslist or on sites such as Swappa. I talk about iPhones in this post only because they’re the most popular option, but you can also get a good, nearly new Android phone such as the Moto X or OnePlus One for less than an iPhone.

If you have a cell phone contract, you’re still paying full price for a new phone, it’s just hidden in the monthly costs. When you compare the total costs of similar plans, you can see how much you can save if you go prepaid:

Cricket (2.5 GB) for Two Years, Prepaid

New iPhone 6 = $650

Plan ($35 a month) = $840

Total cost = $1,490

AT&T (3GB) Two-Year Contract

New iPhone 6 = $200

Activation Fee = $40

Plan ($80 a month) = $1,920

Total cost = $2,160

New Verizon (3GB) Two-Year Service

New iPhone 6 ($27.08 a month) = $650

Plan ($65 a month) = $1,560

Total cost = $2,210

Total Savings = $670 vs. AT&T, $720 vs. Verizon

By using a plan from Verizon or AT&T, you might think you’re getting the best possible coverage. While I can’t completely disagree with that, I do think that the coverage with most providers work well enough, especially in major areas. Living in LA County, I’ve used AT&T, Verizon, Cricket and T-Mobile and they’ve all worked fine.

Is Verizon and AT&Ts coverage worth the added cost of $670+? Not to me.

While the upfront cost of an unlocked phone off contract is crazy expensive, in the end you save a lot more.

Many people don’t worry about reducing their cell phone bills because they can “afford” the monthly payments. If you can cut your payment by $10, that’s an extra $120 in your pocket each year!

Switching to prepaid cell phone plans means we can put that $1,200 a year toward more important things like retirement, paying off our house or funding our daughter’s 529 plan.

Your Turn: Have you tried prepaid cell phone plans? How much did you save, and was it worth it for you?

Disclosure: We have a serious Taco Bell addiction around here. The affiliate links in this post help us order off the dollar menu. Thanks for your support!

Vic is a simple, unassuming father living in a quaint house in a suburb of LA County. After having a daughter, he was inspired to discover ways to save money while living a richer and fuller life with his family. You can find Vic on his blog Dad is Cheap or reach him on Twitter at @dadischeap.

by Vic Lim
Contributor for The Penny Hoarder

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