David Bakke is a contributor for Money Crashers Personal Finance, a resource that helps readers find ways to save money and make sound financial decisions.
In this economy, many Americans are looking for ways to save on anything they can, and one commonly overlooked area is cell phone usage. Trimming money from your cell phone bill on a monthly basis can represent significant savings when calculated over the course of a year. And depending upon your monthly usage, you may very well benefit from going to a prepaid cell phone plan.
How Prepaid Cell Phone Plans Work
In contrast to regular cell phones, prepaid cell phones do not require a contract and never surprise you with extra fees. You simply pay in advance for the minutes that you will use, and that's it. Some carriers offer alerts as to when you are running low, but with others you'll have to track this yourself. You can typically purchase minutes online or over the phone.
- Can Save Money. Depending upon your usage, you can save money by using prepaid minutes. Review your billing statements or contact your current provider to see how many minutes you have used for each of the past three months. Calculate your average monthly usage, and divide this into your monthly bill to determine how much you currently spend per minute. Compare this to various prepaid options to see if you can save. This is also a perfect option for parents who want a phone for their child but don't want to worry about runaway bills.
- No Credit Check. Your credit score affects everything from job applications, to insurance rates, to credit card applications. However, you don't have to worry about this with prepaid cell phone plans. There is no risk involved for the provider, so the issue of your credit rating is a non-issue.
- No Contract. I dislike signing a contract for any monthly service, whether it is Internet, cell phone, cable television, or anything else. Regardless, you don't have to worry about this with a prepaid cell phone plan. You can purchase your minutes as you wish, and switch providers at your leisure without any exorbitant early termination fees.
- Potentially Expensive. You need to do the research to find out if this is a cost-effective option for you. If you'd be paying more than you would by going with a traditional cell phone plan, it just doesn't make sense. Find out how much you spend per minute on your current plan to determine if a prepaid cell phone is a cheaper option.
- Expiration Dates. Keep in mind that many providers attach expiration dates to their minutes. If you go with this option, purchase your minutes judiciously so they don't expire. Larger amounts of minutes are typically less expensive - just be sure you'll use them before time runs out.
- New Phone Needed. To go prepaid, you'll need a new phone. Some companies do offer free phones, but you'll want to factor this into your decision if you have to shell out money for a new phone.
- Need to Track Minutes. If your particular prepaid cell phone does not come with a low-minute alert function, you'll need to track your balance yourself, which you can do over the phone or via the Internet.
Over the past three months, I have averaged 300 minutes used per month. My current plan costs $60, so at that rate I am paying $0.20 per minute.
If I were to switch to a payLo prepaid plan, select one of their phones under $50, and purchase a block of 400 minutes for $20, I would cut the cost of what I spend on a cell phone by two-thirds. That translates into an annual savings of $480. I don't text and don't have mobile Internet on my phone though, so those are two other variables you'll have to factor in if they apply to you.
If you want to enjoy financial success, reduce costs any way that you can. Beyond saving on home energy, groceries, and other necessary expenditures, you can save a lot on your cell phone. Forgo owning a smartphone unless it will significantly benefit your job and income potential. And if you prefer to avoid a contract, you can go this route with a pay-as-you go option.
A prepaid cell phone can indeed save you a lot of money - depending on how much you use your phone. Examine your options carefully, and see if you too may benefit from enjoying a contract-free cell phone.