By Erica Ho How to Decide Between a Prepaid or Contract Wireless Plan The flexibility of prepaid cellphone plans is great, and can potentially save you tons of cash—so why does everyone still insist on signing a contract? Let's take a look at the pros and cons of prepaid vs. contract cellphone plans. Photo by kalleboo. If you're tired of being tied down to a two-year commitment, it may be time to rethink why you're still hanging onto that expensive ball and chain. Below, we'll take a look at what benefits you may enjoy from a prepaid plan over a contract, then we'll examine the prepaid vs. contract cellphone plans for several of the U.S. carriers to give you a better idea of whether or not you might benefit from ditching your contract and going prepaid. Prepaid vs. Contract: The Pros and Cons In many countries, you can go to your local convenience store, buy a prepaid SIM for relatively cheap, and you're ready to make calls in minutes with no contract. The downside? Often you'll need your own phone. With a contract, carriers often subsidize the retail value of a phone in exchange for a fixed commitment from the customer. You're basically paying for the discount. So what's the real price you're paying for that two-year contract, as opposed to going prepaid? Examine Your Habits Before you make any decision about going contract or going prepaid, you need to know your talking habits well. There are a variety of prepaid options: You can pay for X number of minutes, or you can pay by the day that you need access. Things to consider include how much in-network calling you do, and whether you call during nights and weekends. So, look at your recent phone statements, and look at them well. The Money and Phone Issue You've got several reasons to consider prepaid. If you suspect that what you pay in contract is more expensive than what you could pay prepaid, looking into this option is a valid alternative. (You might also want to try BillShrink to see other ways to cut down on your phone service.) Even if you're currently out of contract, but your talking and data needs have changed, changing your plan will often obligate you to commit to a new contract for another two years, regardless of what provider you use. For the commitment-phobic, early phone adopters, or constant phone switchers, contracts can be huge detriments. Keeping Your Number While contract plans can seem like the adult grown-up version to the prepaid equivalent, this option isn't just an alternative for unwieldy teenagers. The major carriers will allow you to port your existing number to prepaid plans, and if you're already using a Google Voice number to manage your existing numbers you won't have to change a thing to get started. Note: For the following non-scientific comparisons, we compared the features of the contract version to the prepaid version that each carrier offered. To simplify things, we did not account for SMS and data packages. Since the cost a cellphone could range widely, we opted for a free non-smartphone whenever possible and noted this circumstance wherever we could. AT&T: GoPhone's Pay by the Day or Prepaid Plan? For AT&T, we started off with an individual plan that would most likely fulfill everyone's needs. If you switched to AT&T's GoPhone prepaid monthly plan, you would pay $10 more every month for less anytime, and night and weekend minutes. Over a contract span, that's $240 more expensive than the contract. Their two-year commitment Nation 450 contract plan, on the other hand, costs $959.76 over two years. If you stuck with the prepaid monthly plan for two years, it would cost roughly $1200. The monthly prepaid option in this case is not ideal for a long-term solution, but if you wanted the freedom to change carriers at any time, you'd be able to opt out of service without paying any cancellation fee, which would likely level the playing field. AT&T's GoPhone Pay-by-the-Day option is a much better value over the Nation 450 with its unlimited calling feature, but only if you use your phone less than 13 days out of the month. But there's another prepaid plan worth noting: AT&T's Simple pay-as-you-go plan allows for unlimited talking and texting for $60 (you can even text internationally for free). If you need an unlimited plan, it's much better than the contract unlimited version that requires you to pay $69.99 per month without text. The contract requires you to pony up $240 more, which, not surprisingly, is enough to buy a phone. AT&T also allows the option of adding text and data plans to prepaid options. If you have a smartphone, this feature can easily translate to savings if you know what you're doing. You could, for example, have Google Voice route your call to Skype for free calls and utilize it for texts. Verizon: Contract is Better Than Prepaid Out of all the major wireless carriers that we surveyed, Verizon offers the most expensive prepaid plans. There's no option to buy minutes—instead, you'll be paying for access by the day. While the decision between contract and prepaid depends a lot on your situation, prepaid generally seems like a poor value on Verizon. If you want the best prepaid deal with Verizon, you'll pay $3.99 a day for "unlimited" access. Verizon also offers a messaging bundle but no data package for its prepaid options. T-Mobile's Contract and Contract-Less Plans: You're Better Off Without the Contract T-Mobile has prepaid options like any good major wireless carrier should. But what distinguishes this carrier from others is the new ability to stay on a plan and go contract-less. Called the Even More and the Even More Plus plans, both plans feature free in-network calling, and free nights and weekends. Each feature the ability to add on SMS and data packages, with the only difference being contract length and phone discounts. The Even More plan requires a two-year contract and offers a phone discount, while the Even More Plus plan requires no contract and doesn't offer a phone discount. We crunched the numbers, picking a 500-minute plan as our basis. The results: In the analysis above, we can see that the Even More Plus 500 ends up cheaper than its contract version. Since the huge variable factor is the phone, we ran an eBay search and returned the Samsung Gravity 2 for around $100. If you're willing to purchase from a third-party, that brings the overall cost of the Even More Plus 500 down to $819.75, making it about $140 cheaper to stay out of contract. (The longer you stay, the better value you get for the Even More Plus plan. But based on the above values, if you don't plan to stay for at least 20 months, the Even More Plus is seemingly more expensive—until you realize, regardless, you're locked in for two years with the Even More plan.) We didn't compare T-Mobile's true prepaid plans, but seeing as how the main draw of prepaid plans is the ability to stay contract-less, we opted to focus on the Even More Plus plan. In the end, Even More Plus remains a better value than any of T-Mobile's other prepaid options unless you talk only at night to other T-Mobile customers and you do not talk every day. T-Mobile prepaid options also lack the ability to add a SMS or data package. So What's The Point? At the end of the day, the point isn't just to save more money (even though that's often a big factor). It's about not being tied to a particular carrier or phone for two years just because you signed a contract, or just so you could save a little money upfront on a phone you'll want to replace in less than two years, anyway. With prepaid, contract-free plans, you can focus on what should matter most: the quality of coverage and service a carrier provides. Everyone's been stuck in a contract or two, so let us know your thoughts below. View comments » Share this:

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