Prepaid Introduction
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David MarseillesDavid Marseilles

Prepaid Introduction

If you're looking to save some money, you might take a long look at your cellular bill. If you're a heavy user of voice and or data, contract plans might be your best bet, while simultaneously providing you with a subsidy of your phone every 2 years or so. However, some light users may find cost savings in a prepaid plan. Extremely light users could save a lot.

American carriers are only just now really offering a respectable variety of prepaid plans. In Asia and Europe, prepaid is far more popular, but in the U.S., carriers have been reluctant to offer decent service or decent prepaid phones. Why? They like the security that comes with having a subscriber base locked in to their plans. What's more, American consumers rather like the phone subsidies that come with contracts. Having to pay full price for a high-end handset can come as quite a shock to some.

There are two basic kinds of prepaid plans. In one, you pay a monthly fee just like you do under contract, but you have no term and there's no ETF if you decide to leave, also, no phone subsidy. In the other, you purchase units (minutes, data, blocks of text messages etc) as you use them.

Monthly plans are pretty self-explanatory. They might save you some money if you are a light user and your carrier offers a smaller monthly prepaid plan than they do a contract plan. At the time of this posting, for instance, AT&T's smallest available contract plan in my area is $39.99. However they have a prepaid monthly plan running $29.99. If your usage fits in that $29.99 prepaid plan, and you don't need the phone subsidy, then you can save by going prepaid. Beware though, a lot of extras that fit into the contract plans may not be in the prepaid plans. Thousands of night and weekend minutes, nationwide long distance, unlimited in-network calling—you'll need to compare every item of the plan to make sure you can get by with the prepaid plan.

Per unit plans require a little more explanation. But for extremely light users, they also offer the potential for exceptional savings. Once upon a time, if you wanted a cell phone, even if you didn't use it much, your options for finding a cheap plan were limited. Some people opted to pay $30-50 a month for the convenience, even though they were dramatically under-using their service. Those people may reap savings from the expanding category of per unit plans.

There are typically two types of per unit plans: those with daily access fees, and those without daily access fees. As a general rule, a plan with a daily access fee will have a lower per minute charge or more perks (like free in-network calling or free evening minutes), and a plan without a daily access fee will charge more per minute and not have as many perks. $1 per day is a common daily access fee charge, and you only pay it on those days that you access the service. In both plans, your minutes have an expiration period. This period can vary depending on how many you buy at a time. With both T-Mobile and AT&T, if you buy in blocks of $100, your minutes won't expire for 1 year. Buying in amounts less than that typically have expiration dates in the 1-3 months range.

A daily access fee plan makes sense if you don't talk on your phone very many days of the month. Say you mainly only make calls on the weekends, but you talk for more than a few minutes for each call, then you are only paying the daily access fee a few times per month. However if you make at least one call every day, and especially if the call is short, you'll end up paying $30 a month before you even start paying the per minute charges. If you're a light user with lots of short calls spread out over the month, a no daily access fee plan is better.

This is a part of's series on prepaid plans. Next up, we'll look at some specific scenarios where you might save money—comparing a particular per month usage against contract and prepaid plans and seeing what it takes to save money with prepaid. Later we'll look at ways to decrease your usage and make prepaid plans make more sense. We'll also look at prepaid data plans and phones, so stay tuned and subscribe to our RSS feed.


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