Why prepaid plans are cheaper

In my experience, most people think that prepaid phone plans are only for poor people, and for people with absolutely horrible credit.

I've came to realize something about them. They are cheaper in the long run... by a lot.

Let's compare T-Mobile's stuff.

Unlimited Individual plan with 2G of data: $80/month
Prepaid unlimited Monthly4G with 2G of data: $60/month

These two plans are exactly the same.

So what's the benefits of getting a contracted plan?

  1. You get a hefty discount and/or free phone
  2. You get "roaming" (see below)

Benefits of monthly plan:

  1. Cheaper, duh.
  2. Can downgrade or upgrade plan at anytime
  3. If you can't afford to pay it, no one is going to complain
  4. Cancel or move to different service at anytime without penalties

So basically, you pay $20 more per month in exchange for a free phone every 2 years. After all, it's just $20. However, $20 times 24 months in 2 years is $480! You can buy a nice phone for yourself every 2 years for $480 and get it "for free" compared to with a plan.. and maybe even earn a bit of interest on the money if you keep it in a savings account

The highest discount I've seen on a contract phone is $400.. sometimes $450 if it's for a limited time... So, think about it.

If you can afford to save up for an "initial" investment of buying the first phone, you are much better off to just put $20 in a savings account every month and every 2 years(or whenever you want) buy a new phone with that money. If you want to downgrade your plan, you can. If they start being terrible, you can even switch service. And you'll still have your savings.

This kind of $20 premium holds for probably every phone provider out there as well. It's not so steep with family plans though, which makes them actually worth it.

Me and my wife are deciding on phones and such and we decided on two prepaid plans because my wife only needs their $50 plan with 200M of data, and I only need their $60 plan with 2G of data. So, we'd be paying $110/month. Their equivalent family plan would be $140/month. $30 times 24 is $720 over a 2 year period, which lets us allocate $360 each for us a new phone... and I may drop down to the $50 plan in the future as well, which would bump that to $480 for each of us.... Of course, I know there is a cheaper family plan that's only $120/month, but I know 200M for both of us is not enough... 200M for just me might not be enough.

Anyway, all my friends are "amazed" at how I can save money by not having a contract, so I thought I'd document it for the internets

Oh and about the roaming bit for contracts: Apparently in a few areas(very few) T-Mobile customers with a contract can "roam" on "off network towers". This detail is documented very poorly and ambiguously on their website. I've only came across this case once in my life, and it's in a fairly odd location.

Posted: 8/30/2012 3:45:24 AM