Smart Buying

Is Your Cell Phone Bill Too High?

You could save hundreds of dollars a year if you switch to a no-contract plan.

Americans waste an average of nearly $350 a year on wireless service, according to BillShrink, a service that compares rates for phone plans, among other products. Most of the excess spending comes from overestimating how many voice minutes and text messages they need and underestimating how much data usage their plans should cover. It doesn’t help that plans from the major wireless carriers make it difficult to balance voice, text and data offerings to get the best price.

As the big carriers grapple with rapid changes in phone technology and competition from Skype and other Internet calling services, their service plans are becoming more and more complex -- leaving consumers with a maze of prices and services to navigate. Plus, wireless providers have designed a golden-handcuffs business model that dangles an inexpensive or free phone in exchange for committing to a two-year contract. Breaking that contract means you’re on the hook for a prorated fee that can be as high as $350. And to entice you to stay, your carrier is likely to nudge you to upgrade to a slick new gadget just as your contract is about to expire.

When it’s time to renew your wireless contract, think twice about your options before you sign on the dotted line. These FAQs will help you figure out whether you’ll benefit from switching to a no-contract plan.

How do I know a no-contract plan is best for me? It may not be. If you prefer a wide range of services and you like choosing among a variety of phones at low or no cost, a contract with a major carrier is still the best option. And contract-based service may be the most economical if you want to add multiple lines with a family plan. But if you can live without some phone choices and fewer perks -- for example, some plans don’t offer the fastest network speeds or the best coverage -- a prepaid plan could be a winner. Study your current plan to get a sense of the services you use. A tool at BillShrink.com analyzes usage information from your plan and suggests plans that may be a better fit at a better price. The information at MyRatePlan.com can also help you make a choice.

Aren’t no-contract plans prepaid? Many are. That means they may charge a flat amount upfront for a month’s worth of service, or charge by the day or by the minute, deducting from a preset balance of cash or minutes. They’re often a good choice if you tend to use your phone only for emergencies or you are trying to budget phone use for, say, a child. But some carriers have introduced contract-free “post-paid” plans, which bill you every month. These plans offer many of the benefits of contract-based plans, such as 4G network speeds and wide phone selection, and lower monthly charges than contract-based plans, says Schwark Satyavolu, chief executive of BillShrink.

Is there a downside to a no-contract plan? The lack of commitment you enjoy with a contract-free plan also works in a carrier’s favor: It can boost rates and change terms anytime. And if you have a prepaid plan and fail to reload your account by the expiration date or a specified time thereafter, you may risk losing your phone number. Also, some plans have extra fees, such as activation charges or daily access charges. And sometimes the phone rebates associated with no-contract programs require you to maintain service for a certain amount of time.

Do I have to wait until the end of my contract to switch? No. Most carriers now charge a prorated fee when you exit a contract early rather than impose the full fee. If you’re tethered to a contract, an early-termination fee could be worth the cost if you’d save a lot by switching to a new plan. If you’re waiting out your contract’s term and want to trim costs, study your most recent bill for each fee, or call your carrier and ask for a breakdown of the expenses line by line. Usually, you’re obligated to keep only core services, such as voice, text and data plans. You can drop anything else, such as insurance or a carrier’s proprietary navigation application.

Do I have to pay a lot for a phone with a no-contract plan? You’ll pay more for a phone than you would if you were signing a contract. Contract plans offer significant discounts on phones because carriers subsidize the phones’ costs to draw customers. The Android-powered LG Optimus S, for instance, was recently $20 from Sprint if you ordered it online and agreed to a two-year contract; the nearly identical LG Optimus V from prepaid service Virgin Mobile had a $200 price tag. But over several months you could pay that cost difference many times over on your service bill if you have a contract.

For a price, you can find the latest, greatest technology with no-contract plans. Several services offer Android and BlackBerry phone models. And you could buy an iPhone from AT&T or Verizon and use it with a no-contract plan, but you’d pay $650 for a 16GB iPhone 4, versus $200 if you signed a two-year contract.

Will I be able to surf the Web? Wireless carriers are still figuring out how to structure and price data services, which allow customers to surf the Web and send e-mail on their phones. Some no-contract plans offer unlimited Web surfing and e-mail in all-in-one plans -- voice, text and data -- that cost $40 to $80, and that could save you money. For example, AT&T has moved to a tiered pricing system, which charges customers based on the amount of data they download. If you have, say, an iPhone with AT&T, you’ll pay $15 a month for 200 megabytes of data usage, $25 a month for 2 gigabytes and $45 monthly for 4GB. Verizon Wireless is rolling out a tiered data plan, effective July 7. New customers with smart phones pay monthly prices of $30 for 2GB of data, $50 for 5GB and $80 for 10GB.

Is the service and reception as good with no-contract plans? That depends. Some no-contract carriers are owned by the wireless giants and operate on their networks. Sprint, for example, owns Boost Mobile and Virgin Mobile. Others, such as MetroPCS, use separate, smaller networks that may have spotty coverage in some areas and charge extra for roaming.

How do I make the switch? Most carriers will allow you to keep your existing phone number when you move to a new service. And they’re required to port a phone number for anyone who stays within a general metropolitan area. Contact your current carrier to ask how best to schedule the move, but don’t cancel your service yet.

Make the transfer when you’re least likely to need your phone -- you won’t have service for a few hours, and possibly a day or more. Once you’re set up with the new carrier, call the former one to confirm that you’re canceling service.

Most Popular

Refunds for $10,200 Unemployment Tax Break to Begin This Month
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Month

The IRS will start issuing automatic refunds sometime in May to people eligible for the unemployment benefit tax exemption.
May 1, 2021
Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs
Coronavirus and Your Money

Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs

People have lots of questions about the new $3,000 or $3,600 child tax credit and the advance payments that the IRS will send to most families in 2021…
May 4, 2021
10 Dividend Growth Stocks You Can Count On
dividend stocks

10 Dividend Growth Stocks You Can Count On

What should investors prioritize in dividend growth stocks? A history of aggressive payout expansion, and the ability to generate enough cash to keep …
May 3, 2021

Recommended

36 Best Amazon Prime Benefits to Use in 2021
Smart Buying

36 Best Amazon Prime Benefits to Use in 2021

At $119 for Amazon Prime, get your money's worth by taking full advantage of your membership. Here's a list of the best Prime perks.
March 17, 2021
What to Do When One Spouse Spends Too Much in Retirement
spending

What to Do When One Spouse Spends Too Much in Retirement

If one partner takes a less conservative approach to money, it can wreak havoc on a marriage. But the problem can be addressed by agreeing on bigger f…
February 10, 2021
A Golf Course Community’s Big Variable for Retirees
Smart Buying

A Golf Course Community’s Big Variable for Retirees

Golf club memberships can often be a separate, and hefty, annual fee at golf communities. Here's some guidance before you tee up your retirement move …
December 14, 2020
Don’t Buy This: Top 20 List of Things That Aren't Worth the Money
spending

Don’t Buy This: Top 20 List of Things That Aren't Worth the Money

Buyer’s remorse is real, and if you purchase any of these 20 items, chances are you’ll get to experience it firsthand.
December 9, 2020