Contract vs. Prepaid Cell Phone Plans

Can a prepaid phone plan work for you?

The benefits of prepaid wireless are pretty obvious: no monthly bill, easier-to-control costs, no credit checks and no long-term commitment. It costs less than a regular contract plan, too, in most cases. However, there's a laundry list of considerations that could ultimately make a regular, contracted cell phone plan the better option. If you're not sure which is best for you, see the companion ConsumerSearch report on cell phone plans.

Contract customers could save anywhere from $100 to more than $1,000 by switching to prepaid wireless, experts say. "If your monthly cell phone bill makes you cringeÉ we've long recommended considering a switch to prepaid phone service," says ConsumerReports.org.

If you're a light user -- say, you talk 100 minutes or fewer in a month -- you'll "almost always come out ahead with prepaid," says Kelli B. Grant at SmartMoney magazine. But even heavy talkers, texters and data users can save money with an unlimited prepaid phone plan. Virgin Mobile sells one for $55 a month, while Boost Mobile charges $50 a month for unlimited service (Boost's "shrinkage" feature cuts the monthly price by $5 every six months, down to $35). That's $20 to $80 less than you'd pay for unlimited service under a contract, Grant points out.

Some smartphones will work with some prepaid carriers. Virgin Mobile offers one of the most advanced prepaid smartphones, the LG Optimus Slider (*Est. $200) running Android 2.2. Boost Mobile offers older Android and BlackBerry models. T-Mobile sells a prepaid SIM card (*Est. $7) that you can insert into unlocked GSM phones.

About.com has a helpful Plan Chooser calculator that can narrow your decision. The 12-question quiz helps you calculate the best prepaid or contract cell phone plan for you. It includes questions to determine how many minutes you use your cell phone in a week, how long a typical phone call lasts, etc. You should take this step to estimate usage.

After you determine the type of phone, minute usage and type of service you will use (such as whether you will use text messages or mobile email frequently, whether you're likely to travel out of the calling area, etc.), experts advise going to the next step and doing some fact-checking on your own before settling on a plan. Carriers offer deals and rebates on phones and special offers on their websites and in stores, so it is always a good idea to check with the individual carriers (listed in Useful Links).