Cell Phones: Is a No-Contract Deal Cheaper?

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AT&T is now rolling out a no-contract plan, joining T-Mobile and Sprint. Could it save you money?

Probably. “A monthly $70 contract-free plan from T-Mobile, compared with a two-year $100 contract from Verizon, saves you $720 over two years,” The Christian Science Monitor found.

But as always, the devil’s in the details. The site also took a good look at the fine print to figure out whether switching to no-contract is worth the headache. Here are some of the key takeaways:

  • Two-year plans subsidize the up-front cost of that shiny smartphone you want, but get it back by locking you in at higher rates and charging you big fees for leaving early. Those fees decrease over time until the contract’s up.
  • Most no-contract plans make you buy the phone at full price, but you get a month-to-month plan. That could mean paying $350 for a 16 GB iPhone 4S, while the contract plan would mean paying $99 for it.
  • T-Mobile has an interest-free plan that combines the best of both worlds: no contract, and you can get a nice phone for a $100 down payment and an extra $20/month on your bill. But if you leave before the phone’s paid off, you still have to cough up the rest, immediately — not much better than an early termination fee on a contract.
  • You can sometimes bring your old phone over to a no-contract plan or buy a used one for cheap from sites like Mobile Karma, but they might not be compatible with all carriers. Check first.
  • You can also sell an old phone through sites like uSell.com and Gazelle to offset the cost of a new phone, but they’re picky about models. Again, check first.

For people who upgrade at least every couple years and take good care of their name-brand devices, it sounds like no-contract plans can save a lot — if you take the time to read the fine print. Maybe that’s something to look into while waiting on your current contract to expire.

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