Cell Phone Service: Contract Or Prepaid?

By Mark Di Vincenzo. May 7th 2016

Contract or prepaid cell phone service? Good question.

You need to know how you use your phone before you can answer that question and make a decision about going contract or going prepaid.

The trend in the industry is to go from contract to prepaid as consumers look for more control and freedom from two-year contracts.

If you think that you want to go prepaid, check out four or five of your most recent phone statements to see how much in-network calling you do and how often you talk at night or during the weekends. With prepaid, you also need to figure out if you want to pay for a certain number of minutes or if you want to pay by the day that you need access.

Some people swear by prepaid and can’t figure out why so many people opt to sign contracts with phone companies, but prepaid and contract cell phone services are intended for different groups of consumers and there really are pros and cons to both. Here are some of both.

Prepaid Pros

  • Save money. With prepaids, there is the potential to save a lot of money if you don’t use your phone a lot. Prepaids are great for folks who don’t use the number of minutes included in most cell phone contract plans.
  • No commitments. The vast majority of contract plans require a two-year commitment that costs hundreds of dollars to break.
  • Pay as you go. Prepaids sometimes are compared to toll roads. If you use them, you have to pay. If you don’t, you don’t. Prepaid customer love the fairness that they see in prepaids. They’re not paying for what they’re not using.
  • Good for budgeting. With prepaids, you know what you’re paying. You’re not going to open a phone bill and get shocked. Prepaids also can help parents control their children's cell phone use.

Prepaid Cons

  • High per-minute charges. Per-minute charges in most prepaid plans are higher than contract charges. This is especially true with heavy users.
  • No phone equipment discounts. Prepaid phone equipment tends to cost more than the discounted phones that carriers offer to consumers who sign longer contracts.
  • Connectivity issues. In parts of the country where prepaid cell phones are less common, some users complain about poor connectivity.

Contract Pros

  • Good value. Generally speaking, contract cell phone services offer frequent users plenty of minutes and good services at an affordable cost.
  • Phone equipment discounts. Users who sign contracts enjoy good discounts on phones. The longer the contract, the better the discounts. Not so with prepaid users.
  • Great for regular users. Contract cell phone services are ideal for those who use their phones about the same each month. For these customers, there are no surprises when the phone bill arrives. Professionals and other consistent cell phone users tend to like contract plans.
  • Convenience. If you sign a contract, you never run out of minutes because minutes on a contract phone automatically renew from month to month, so you don’t have to refill phone minutes.

Contract Cons

  • It’s a contract. If you are not fond of contracts, you won’t like this, and if you like to switch phones often, this isn’t for you. And cell phone contracts are as binding as they come. They typically lock you in for two years or longer – longer if you sign a longer term contract. Getting out of the contract for whatever reason – including if you move to a city outside the coverage area -- involves paying a penalty. The amount depends on when you want out of it.
  • If you don’t use them, you lose them. Minutes, that is. If you don’t use the minutes spelled out in your contract plan, it is extremely rare for a carrier to reimburse you.
  • Little flexibility. If you use more minutes than your contract plan allows, you probably will pay a premium for those additional minutes. What’s more, if you change your plan in the middle of a contract, you often must commit to a new two-year contract to avoid a big penalty.

Prepaid or contract? We want an answer to this question because we want to know which one will save us the most money. So if money is your only concern, the answer is it depends. But this decision is not all about money. It is also about the quality of coverage and service that a carrier provides. Be smart and do your homework, weigh your own pros and cons based on money, coverage and service.

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