Self-described thrifty spender Mark Parobeck had been with Verizon (Stock Quote: VZ) for years before he decided that paying a $120 a month cell phone bill was not going to work for him.
Parobeck could have easily switched to another carrier or simply renegotiated his plan, but he decided to cut the cord (so to speak) and use a pay-as-you- go program.
“I was addicted to my cell phone,” says Parobeck, a landlord in upstate New York who dumped Verizon two years ago to enroll in a pre-paid plan, first with AT&T (Stock Quote: T) and then with Virgin Mobile (Stock Quote: VM). “I was paying more than $100 a month before I switched; these days, I might pay $100 a quarter.”
After canceling his plan with Verizon, Mark bought a used cell phone and a number of minutes on eBay (Stock Quote: EBAY). Today, he purchases 450 minutes for only $99, or 22 cents per minute. Text messaging costs seven cents per message.
Here's How You Can Save
If you’re thinking about making the switch, here’s what you need to think about:
The Plan: The average cell phone bill in the U.S. is $63 a month, according to JD Power and Associates. (For very communicative users that number is higher, and for smart phone users the number is higher still.) If you go with the prepaid, there is no plan, so no set monthly fee.
The Phone: Lots of cell phone plans offer free or reduced price phones when you sign a one or two year contract. If you go the prepaid route, then these deals don’t apply. Basic, entry level phones start at $49.99 whereas higher end smart phones start at $299.99. Used phones can be found for less.
The Minutes: A typical, $40 a month plan includes about 450 minutes per month. If you exceed those minutes, expect to pay between 35 and 45 cents for every extra minute. If you go with a prepaid plan, you buy your minutes in chunks. Mark bought his minutes on eBay but you can also buy them from retailers and even drug stores. On the open market, the going rate is roughly 8 cents per minute.
The Extras: Becoming a prepaid customer doesn’t mean that you can’t text, check email and browse the web. Though data plans differ from carrier to carier some, such as AT&T and AllTel, sell plans at different prices ranging from 100 megabytes for $19.99 to one megabyte for $4.99. Others, such as Verizon and T-Mobile, bill 99 cents to $1 per day.
Though pay-as-you-go plans are usually limited to cell phone customers, smartphone users can purchase BlackBerry (Stock Quote: RIMM) and iPhone-compatible data plans through AT&T Wireless. You’ll want to check with your carrier to make sure that they have an appropriate data plan before you switch.
The Fees: Cell phone plans come with taxes, surcharges and, if you screw up, late fees. When you buy minutes, you may pay sales tax on the purchase, but that’s usually it.
Prepaid cell phone plans can lower you bill dramatically, but they’re not for everyone.
A periodic cell phone user who may talk for an hour a month may benefit from buying minutes and burning on an as-needed basis. However, if you’re tied to your BlackBerry or obsessed with your iPhone, you may want to avoid those prepaid minutes since you run the risk of running out before you can stock up.
—For the best rates on CDs, mortgages, savings, credit cards and more, enter your ZIP code at BankingMyWay.com.