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Smart Buying

Cut the Cost of an iPhone in Half

Opting for a prepaid, month-to-month service plan will help you save big.

Sure, there are plenty of smart phones that are cheaper than an iPhone. But you don't get all the bells and whistles, nor the cachet, that comes with owning an Apple product. However, an iPhone doesn't have to be as expensive as it might seem.

It's not the phone itself that's the real budget breaker. It's the two-year service contract that consumers typically get locked into when they buy an iPhone that's the real expense. If you sign up for the standard talk, text and data plan for about $110 a month, you'll shell out more than $2,600 over two years.

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However, there's a way to cut the cost of a service plan in half, says Brad Wilson, founder of BradsDeals.com and author of Do More, Spend Less: The New Secrets of Living the Good Life for Less. The key is to use a prepaid wireless provider rather than signing up for a contract with one of the major carriers. Wilson pays just $41.67 a month for unlimited talk, text and data for his iPhone by using Straight Talk Wireless, a prepaid carrier owned by Walmart that uses AT&T's network. (AT&T charges $109.99 a month for an individual plan with unlimited talk, text and 300 MB of data when you purchase in iPhone through Apple.com and sign up for a two-year contract.) So rather than paying $2,600 over two years for phone service with a major carrier, he'll pay about $1,000 with his prepaid plan.

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Here's how it works:

Buy an unlocked phone. An iPhone usually costs $199 when you buy one with a two-year service contract. Buying an unlocked phone (a phone that's not locked into a single carrier's network) can cost three times as much -- $649 for the new iPhone 5 -- because you lose the subsidy that the carrier gives you when you sign up for a contract. And you must buy an unlocked phone to take advantage of a prepaid plan. However, you can get older models and refurbished phones for a lot less. Wilson bought a refurbished iPhone for $479.99. You can find an unlocked iPhone 3GS for $379 at both Walmart and Best Buy. Prepaid wireless company H2O Wireless currently is offering a refurbished iPhone 3GS for $199.

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Buy a SIM card. You'll need a SIM card to insert into your phone to activate a service plan. Wilson bought his through Straight Talk for $14.99. Some other prepaid wireless companies offer them for $9.99.

Choose a wireless provider. Unlocked iPhones only work on GSM networks, such as AT&T's, according to the Apple Web site. The unlocked iPhone 4, 4S and 5 do not work on CDMA-based carriers, such as Sprint or Verizon. Among the prepaid wireless companies that use a GSM network are Straight Talk Wireless, H2O Wireless and Red Pocket Mobile. Wilson was able to get the $41.67 monthly price with Straight Talk, which usually offers unlimited talk, text and data for $45 a month, by prepaying for six months.

This approach can also work with other smart phones, such as a Samsung Galaxy or BlackBerry. You just have to buy an unlocked phone and choose a carrier that uses a GSM network.

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