These days, cell phones are more popular and powerful than ever before. According to Pew Research, 97% of Americans own a smartphone, and the days of clunky flip phones are long gone.
However, while mobile technology and accessibility keep improving, costs have not decreased. The average person spends nearly $1,300 – $1,400 on their cellphone plan, and costs consistently increase.
Several ways exist to lower your monthly cellphone bill without sacrificing service quality. A common strategy is switching to a prepaid phone plan, which is often cheaper than fixed-term contracts with major carriers.
If you want a cheaper and more flexible phone plan, prepaid phone plans are worth considering. Before you do, consider the differences between prepaid vs. contract phone plans.
Prepaid vs. Contract Cellphone Plans: Key Differences
If you haven’t done a lot of cellphone shopping, it’s easy to get confused when searching for your next plan. Additionally, you might hear the terms “prepaid,” “postpaid,” and “no-contract” plans thrown around.
A prepaid phone plan is what it sounds like. You pay upfront for your monthly phone usage, deciding how many minutes, texts, and gigabytes (GB) of data you think you’ll use. When you run out, you must wait until the next month for your minutes, texting, and data limits to refresh unless you buy more during the month.
In contrast, contract cellphone plans are more rigid plans offered by major service providers like AT&T, T-Mobile, and Verizon. Plans are typically two years long, and you choose from various monthly plans that include different amounts of talk, text, and data. The cost of your phone is usually built into your monthly bill, even though many contract phone plans advertise new phones as $0.
The Best Prepaid Phone Plans
If you’re convinced that prepaid cellphone plans are for you, there are several affordable companies to consider, including:
- Visible by Verizon
- Boost Mobile
- Cricket Wireless
- Mint Mobile
- Tello
- Straight Talk
Major carriers are also becoming more competitive with their prepaid phone plans. Their prices aren’t as low as companies like Tello or Mint Mobile, but family deals and potentially better coverage might make them superior depending on your cellphone needs.
Advantages of Prepaid Cellphone Plans
The differences between prepaid and contract cellphone plans might seem irrelevant. However, prepaid cellphone plans have several advantages that also cut costs. If you want to save money on a tight budget, prepaid carriers might be your best option.
1. Lower Monthly Cost
The main advantage of prepaid phone plans over contract plans is lower pricing. With a prepaid service, you can buy exactly what you need. If you only text, SMS-only plans are available. You can also find plans that offer unlimited calling and data if that’s what you need.
Plus, if you don’t need unlimited data, you can find cheaper prepaid options than their contract plan counterparts.
There may be exceptions, but on average, prepaid phone plans are almost always cheaper than their contract equivalent. Plus, many prepaid plans don’t charge an activation fee, so you don’t have to worry about an expensive first month.
2. Flexibility
Another advantage of using a prepaid phone plan is flexibility. Contract plans usually last two years. If you want to switch carriers for better service or to save money, you’ll pay a termination fee or have to buy out your contract before leaving.
This fee often makes it impossible to leave before your contract ends because the cost is too high. With prepaid plans, if you want to try a new cellular service, you can make the switch anytime. If you’ve ever been stuck in a costly contract, you’ll understand the benefit of this freedom.
3. No Credit Check
Contract cellphone plans usually require a credit check for approval. This is because mobile carriers want to mitigate the risk that you won’t be able to pay your phone bills on time.
Carriers want to see a good credit score. Therefore, if you’re still improving your credit score, you might find getting approved by certain carriers difficult. Prepaid cellphone plans usually don’t require a credit check because you pay upfront for service, eliminating the risk that you won’t pay your phone bill.
4. Abundant Features
Prepaid phone plans used to have limitations, especially for data and calling. These limitations made them inferior to contract plans for several years, although today, this trend has changed dramatically.
The competition between prepaid mobile phone providers and improvements in cellular networks has put prepaid phone plans on par with contract plans. Numerous carriers offer unlimited talk, text, and data plans at competitive rates. Plus, network coverage and data speed have improved over the years.
Many prepaid phone providers piggyback off the cellular networks from the three major carriers, AT&T, T-Mobile, and Verizon. This enables nationwide access and data speeds for regular Internet usage and even streaming. Your prepaid plan might not be as fast as a top-tier plan from a major provider, but the savings are worth it.
5. No Overage Fees
An easy way to waste money with a contract plan is to go over your limits. Because you pay at the end of each month, overage fees are a real threat, and there are plenty of horror stories of people racking up $1,000 phone bills accidentally.
This mistake is easier to make than you might think. An accidental tap on the screen can turn off your phone’s Wi-Fi, making you rapidly drain your data. Similarly, if you don’t get the right roaming package, you might pay more than you anticipated when traveling internationally.
Prepaid phone plans eliminate the risk of overage fees. If you use your limits, your service stops until your next payment or until you buy additional usage. If you’ve been stung by overage fees, prepaid phone plans are your best protective measure.
Disadvantages of Prepaid Cellphone Plans
Prepaid phone plans are affordable, flexible, and remarkably competitive with contract plans. However, there are several downsides to consider.
1. Family Plans Are Often Superior
Contract phone plans are more expensive than prepaid phone plans for individuals. However, major carriers sweeten the deal for families or with service bundling, which can make their price-per-phone more competitive.
Cellphone carriers typically charge 25% of the original phone’s cost for additional lines. Although contract plans still lack flexibility, they certainly suit larger households from an affordability perspective.
If you haven’t cut the cord for cable, you can also consider bundling your phone and cable service with different contract providers to save more money.
2. International Limitations
Because many prepaid phone plans use existing U.S. cellular networks to provide service, they aren’t always the best for traveling internationally. However, most major carriers let you buy a pay-as-you-go add-on for international roaming or upgrade your plan during a trip.
Prepaid phone providers like Mint Mobile have recently added roaming capabilities, so saving money on vacation is becoming easier for prepaid users. However, don’t expect this feature for every prepaid cellphone plan.
If you frequently travel for work or are trying the digital nomad lifestyle, some international-friendly prepaid phone plans include:
- Keepgo. Buy a prepaid travel SIM card and Wi-Fi hotspot plan that works in over 100 countries. Prepaid data SIM card plans are $24 per 1GB of data, but there are price breaks at higher intervals.
- Google Fi. Enjoy unlimited data and texting while abroad and calling for $0.20 per minute with the $110 per month unlimited plan. Alternatively, a flexible travel plan costs $35 per month and provides unlimited texting and $0.20 per minute calling. With the travel plan, you can also buy data for $10 per gigabyte.
Again, your existing carrier might make upgrading your plan for your next international trip affordable. Check your options before switching to a prepaid phone plan if you have upcoming travel plans.
3. Upfront Hardware Cost
Contract plans work hardware price into their monthly cost. While this is one reason contract plans are more expensive than prepaid plans on average, the upfront cost of having to buy a phone separately is a drawback for prepaid plans if you’re living paycheck to paycheck.
If you want the latest smartphone model, you must buy it upfront with a prepaid plan. Some prepaid providers offer financing, but this increases the long-term cost of your phone.
Many prepaid plans allow you to bring your own phone, provided it’s compatible with their monthly plans. Ultimately, this means the easiest way for many people to switch to a prepaid phone plan is to finish their existing contract and bring their own device.
4. Speed Throttling
Most cellphone plans throttle data speed after a certain usage amount. For example, AT&T sometimes reduces data speed for different unlimited data plans when customers use more than 22GB or 50GB in one billing period. They also throttle speed if their network is too busy.
Because many prepaid cellphone plans use major cellular networks, their customers aren’t the priority for maintaining data speed. This means many prepaid plans offer 5G and 4G LTE data speeds but only for a certain amount of data before throttling kicks in.
For example, the popular prepaid cellphone provider Tello throttles 4G data to 2G speed on unlimited plans after you use 25GB. This is a common practice for prepaid plans, even for unlimited data users.
This isn’t a deal-breaker unless you require fast data speeds and considerable monthly usage limits. However, potential speed reductions are worth considering if you switch to a prepaid phone plan.
Final Word
One of the simplest ways to become more frugal is to find ways to save money on the things you already buy; cellphone plans aren’t an exception. Plus, because the annual cost of phone plans steadily increases each year, you can find major savings by switching to the right prepaid phone plan.
Once you choose the right cellphone, shop around for plans before signing a contract. Prepaid phone plans are becoming more competitive each year, and if you can find one that suits your needs, you’re looking at potentially hundreds of dollars in savings per year.
