Pros and Cons of Prepaid Cell Phone Plans

Think about how much you paid per-minute on your first cell phone. Quite a bit, right? It seems as though phone plans today are cheaper than ever before — so why are we actually spending more money than ever on our cell phones?

According to the Bureau of Labor Statistics, the average cost increased more than 50% from 2007 to 2014. Americans are now spending over $900 per individual annually (of course, this is in addition to the actual cost of our smartphones, which easily top $700 in many cases). Much of this added cost is due to data plans, something we didn’t worry about much in the flip phone days. With the advent of today’s smartphones, data usage has become an expense in and of itself.

With the cost of cell phone plans on the rise, it’s no wonder people are looking for ways to save. One way that people tend to save on cell phone plans is by switching from contract to prepaid. Before you jump the gun, though, it’s important to consider the pros and cons of prepaid cell phone plans. Let’s take a deeper look:

Benefits Of Prepaid Cell Phone Plans

Monthly Savings

Although prices fluctuate each year, you can see general trends in price differences between contract and prepaid cell phone plans. At the time of this article’s publication, Boost Mobile, a prepaid cell phone provider that operates on the Sprint network, charges $30 to $55 for individual plans. On the other hand, Sprint itself charges $50 to $100 for similar plans on contract.

Learn More: 15 Ways to Slash Your Cell Phone Bill

This is typical of most prepaid cell phone providers and their counterparts. In exchange for paying lower monthly bills, you’ll pay full price for your phone upfront. Although the initial price of the phone is high, your savings will add up over the months to recoup that cost.

Flexibility

Have you tried a prepaid cell phone provider and decided it’s not for you? No worries. You can easily cancel your service without any fees and still keep your phone number. On the other hand, if you locked yourself into a two-year contract with one of the big-name cell phone providers, you’d have to pay a hefty cancellation fee to get out of it.

No Overage Fees

A prepaid plan is exactly what it sounds like: you pay for your cell phone service before using it. This means that each month, you pay for the upcoming 30 days of service. The benefit of this is that it’s not possible to go over your allotted minutes, texts, or data. Once it runs out, you’ll have to wait until your service replenishes the following month or actively switch your plan to include more minutes, texts, or data.

On the other hand, you can easily rack up overage fees on contract plans. As of September 2016, Verizon charges $15 per gigabyte of data overage, rounded up. We all know how quickly you can go through your data allowance with streaming alone. So, an overage fee of $15 per 1GB of data can easily add up to a lot more, if you’re not closely monitoring your usage.

Drawbacks Of Prepaid Cell Phone Plans

More Expensive Phones

As previously mentioned, you have to pay full price for your cell phone when on a prepaid plan. Although there are low-cost cell phones on the market, you’ll have to pay the full retail price if you want a smartphone. For the latest model iPhone, that could easily be over $600.

That amount can be difficult for some to cough up at one time. That’s the lure of contract plans, of course -- you typically get cell phones at a highly discounted price, or are offered a payment plan. If you do end up paying for your cell phone outright with a prepaid plan, though, just remember that you’ll be saving money in the long run with lower monthly bills.

Limited International Roaming Capability

Prepaid cell phone plans have limited international roaming capability. I recently traveled to Toronto, Canada with my Boost Mobile phone and found myself without service during my time there. Although Boost Mobile offers plans with international calling to places like Canada, you often won’t have cellular service when traveling there. This is typical of prepaid cell phone providers. This may be one of the ways they keep their costs and prices for plans so low.

How To Decide Which Is Right For You

The monthly savings, flexibility, and lack of overages fees may be enough to sell you on getting a prepaid cell phone plan. For others, the fact that phones are more expensive or the limited international roaming capability may be a dealbreaker. Most of you probably fall somewhere in the middle. Here are three questions you can ask to decide which type of plan is right for you:

Do you use a lot of data?

Do you find yourself using your cell phone’s data for things like video and music streaming? In this case, you’ll need a plan that includes a higher number of gigabytes. If you go with a contract plan, your monthly bill will reflect your amount of data and be much higher. If you go with a prepaid plan, your monthly bill won’t be that much higher.

Prepaid plans seem to hover around $60 per month at the most for an individual plan while it’s not uncommon to see an individual plan for over $75 on contract plan providers.

Verdict: If you use a lot of data, a prepaid cell phone plan will likely be better for you.

Do you travel abroad frequently?

Contract cell phone providers are coming up with comprehensive add-ons to make using your phone while traveling abroad seamless. For example, Verizon offers TravelPass, which allows you to use your phone in over 100 countries across the world for a small daily fee.

This feature is almost nonexistent with prepaid cell phone providers. There is a workaround, however. If your provider allows, you can purchase a SIM card in the country you’re visiting once you get there and replace your domestic with one. This option isn’t available on all carriers, but may be worth looking into.

Some people may feel misled because prepaid cell phone providers offer international calls when you’re in the U.S. This is not to be confused with coverage once you’re in those countries.

Verdict: If you travel abroad frequently, a contract cell phone plan will likely be better for you.

Is saving money on your cell phone plan important to you?

The answer to this question may be obvious to some, but it’s still worth asking. Is it really that important to you to save money on your cell phone plan? Some of you may have the extra room in your budget, in which case saving a few dollars per month wouldn’t make much of a difference. For the more frugal person who considers every dollar in the budget, that monthly savings can make a big difference.

Also, it’s important to consider what the monthly savings will actually cost you in terms outside of money. For me, not being able to use my phone abroad was a big deal. What if someone back home needed to reach me for something important?

Wrapping Up

After having a prepaid cell phone plan for the past few years, I’ve decided to switch to a contract plan. The main reason is because I plan to travel more in the future and want to be able to use my phone abroad. I understand that my monthly bill will be more expensive. But it’s worth it for me if it means I have peace of mind while traveling.

In this article, the benefits of a prepaid plan slightly outway the drawbacks. Despite my decision to switch plans now, having a prepaid cell phone plan these past few years has saved me a lot of money. I always bought my phones during sales. So, even though I paid for them upfront, the price never negated my monthly savings. If you’re truly just looking to save cash each month, having a prepaid cell phone plan is a great idea.

What type of cell phone plan do you have?