No Contract Cell Phone Plans Exposed! Are They Really Better?

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No contract mobile phone plans have become all the rage as of late.  I even tried one through a blogging opportunity last year and was actually quite impressed.  Apparently, no contract providers have gotten the attention of the major carriers, as they have begun to offer no contract plans of their own. 

I received an email from my carrier outlining their no contract plan last Friday.

We’re currently under a two year contract with ATT&T, and for my family of four plus two extended family members to all have smart phones sharing a 10GB data plan we pay $309 a month. 

Note: Our monthly rate includes a 23% discount off the data plan through my employer.

The email indicated that by switching to the new AT&T no-contract family plan, we would have the same unlimited talk and text  plus 10GB of shared data capability at a rate of $167 a month (after applying my employer discount), or about $28 per line.

That’s a total savings of $152 a month!

As with anything that cuts a significant bill in half, I was skeptical.  If it sounds too good to be true, it probably is.   The representative I spoke with on the phone was very forthcoming about how they are able to offer such a price reduction:  With the no contract plan, there is no longer discounted handset upgrades.  Which means you would pay $600 or more for your next generation iPhone. BUT, she was quick to point out that we can upgrade our handset, and make installment payments on the phone that would be conveniently added to our monthly bill.

Gee, thanks.  I’d just love to make installment payments on a phone.

Being the curious guy that I am, I inquired as to how much it would cost per month to upgrade a handset.  Most of the popular high end smart phones (iPhone 5s, Galaxy S4, etc) would add about $25 to your monthly plan.  It didn’t take more than 2 seconds for me to do the following equation in my head:

$167 (for new plan) +  $150 (6 lines on plan * $25 installment per phone) = $307.

This exercise taught me two things:

  1. When you sign a two year contract, the price of your phone is BUILT INTO the price of your plan.
  2. EVERY CENT you pay for a handset is pure profit for the carrier when you sign a two year contract.  If you don’t believe me, compare my original plan cost to what my monthly bill would be if all 6 of us upgraded our phones.  Then, read #1 again.

Some other things that struck me as very interesting about the new no-contract plan:

  • The price of our new no-contract plan, plus the cost for all six of us to upgrade our phone looks suspiciously similar to what we pay now.  (Again, read #1 above)
  • The number of monthly payments needed to own the phone outright is 26. Hmm, that looks suspiciously close to length of our current two year contract.
  • Under the no-contract plan we can cancel at any time.  However, the remaining balance for any phone under an installment plan would be due in full.  Does that sound like a cancellation fee to anyone else?

If you plan to upgrade your phone every two years (or less),  no contract plans are almost identical to the two year contract plans. The only difference is the structure and terminology of the fees. 

There are, however, two major advantages to no contract plans that can result in significant savings on your cell phone plan:

Upgrade Frequency:  Under a 2 year contract, the price of your phone is included in your monthly bill.   That means that after your contract is up, and you continue the service, you’re paying for a new phone whether you upgraded or not.  In a no contract plan you only pay for a new phone (either in full, or through installments) when you are ready to shell out the cash.  When you’re not paying for a new phone, your bill is significantly lower.

Phone Price:  Under the 2 year contract, you’re paying for a premium phone whether you have one or not.  If you don’t want, or cannot afford a premium phone, the no contract structure allows you to have total control over how much you pay for your phone. 

No contract mobile phone plans are a lot of smoke and mirrors, and aren’t as different from the traditional two year contract as the carriers would like us to believe.  But they do put control of the price and frequency of phone upgrades squarely under the control of the consumer, right where it should be.

Do you have a no contract mobile phone plan?  How often do you upgrade your phone?

About Travis

42 Responses to “No Contract Cell Phone Plans Exposed! Are They Really Better?”

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  1. Interesting stuff, Travis. I switched to Walmart Family Mobile last Summer due to a campaign and actually ended up signing up my wife for it too (voluntarily!). I really like the no-contract plan we are on and the fact that the LG L9 phone was only ~$200. I don’t mind paying for a new phone every 2 years if it isn’t the full $600 price tag (not sure how it works with other carriers or how expensive phones are on the no-contract plans. LG L9 is the best phone Walmart Family Mobile had at the time). For now I’ll stay on the no-contract plan until I see a reason to stop (Oh, and it saved us like $80 a month!)

    • Travis says:

      That’s the beauty, and the real savings of the no-contract plan – YOU get to decide how much you want to spend on the phone, not the carrier. You may want to look into the no-contract features of the major carriers, though…..(this is NOT a sponsored post), as noted above, my per line price on AT&T’s no contract plan is even cheaper than Walmart Family Mobile.

  2. I have a Moto X through Republic Wireless. It’s a no contract phone, and I really do like it. I got the phone free through a promo and the service only costs $25 per month!

    • Travis says:

      Getting a great phone through a promotion really gives a person a lot of freedom. I got my Galaxy S4 through a promotion last year, and have no reason to get anything else. That allows me to save some coin by moving to the no-contract variety of program. $25 per month for a cell phone contract is dirt cheap these days! Thanks for sharing, Holly!

  3. Very interesting Travis. We’re currently with Verizon and will be looking for options to get off of them when our contract is up. The challenge is going to being able to break my wife of her iPhone, but man that monthly bill sucks.

    • Travis says:

      I don’t know if you need to get your wife off her iPhone…most no contract plans will allow you to bring your own phone, and support iPhones too! It’s crazy how much we’ll spend on service for our phones, isn’t it, John???

    • John, can you get Verizon to “unlock” your wife’s phone? It usually costs about $50 or so and you can then use the phone to sign up with any carrier you wish.

      Once you choose another carrier, you can also opt for voice only on the iPhone and use WiFi for data. Works like a charm if you mostly use data in WiFi zones and want to save tons of cash.

      • Travis says:

        I think most carriers will unlock your phone for free these days as long as you currently “own” your phone. You can also find unlock instructions for many phones on the internet….I found the instructions for my Galaxy S4 with just a few minutes of searching. 🙂

  4. Haha, what a way to do the numbers. Unfortunately, many will fall for this plan as they don’t realize the cost of the phones. All no contract plans require you to pay outright for the phone. You just have to do the ROI. This is why I buy my phone off eBay and then go with a bring your own phone plan. I can easily recoup the cost within a few months.

    • Travis says:

      Great point, Grayson, a consumer doesn’t have to get their phone from the carrier….we have endless means to get a phone, searching for the best deal possible. Thanks for the tip!

  5. We use no contract phones for our 3 children with Virgin Mobile. The offer 300 minutes, unlimited text and data for $35 a month. With the amount of texting and surfing done by my children this plan works well. As far as phones we can get a good android smart phone for about $100. Its not an iPhone 5s or Galaxy S4, but pretty god for what the kids need it for.

    • Travis says:

      Phones are a lot like computers, you can pay a ton for them, but you could spend a lot less simply by purchasing a model that exactly fits your needs. I always say, my favorite ap is the one where I press numbers and then talk to people. 🙂

  6. I recently made the switch to a no contract plan with Page Plus Cellular. I used to be with Verizon but after my contract was up I jumped to Page Plus because I could use my current iPhone 4s on their network, which is powered by Verizon. It was a win for me as I didn’t have to shell out any additional money for a new phone and my plan is 1200 min talk, 3000 text and 500 mb of data for $29.95/month. I’m saving $88/month. I used to upgrade phones every 2 years but since I got my iPhone I really didn’t see the need to upgrade so quickly this time around.

    • Travis says:

      iPhones are an interesting phenomenon (as are many of the premium Android phones). There’s some segment of the population that jump and buy the latest phone the second comes out. Not because they need it…but because it’s a status symbol. The good news for the rest of us is that it floods the market with iPhones a generation or two behind that are perfectly fine. My daughter has an iPhone 4, and it works perfect for her, and will continue to for quite some time. That sort of scenario allows us to move to AT&T’s new no contract structure as we don’t have any need to upgrade our phones anytime soon. With many of the major carriers moving to no-contract offerings, it will be interesting to see how many people jump ship back to them. thanks for Sharing, Raquel!

  7. Ive been with AT&T forever with my iPhone, but have recently started looking into either getting Ting or Republic Wireless. I still can’t figure out which would be better. I’m probably getting screwed because I never upgrade my phone unless I have to (meaning it breaks, or one time I did drown my phone). I pay $94/month with my current plan, but would like to slash that by half.

  8. MMD says:

    Interesting breakdown of the phone plans. I find it a lot to be like the debate between leasing and owning a car – no matter which one you choose, they’ll get your money in one shape or form.

    • Travis says:

      That’s true, MMD, they will get our money – we have become too dependent upon cell phones as a society. It’s almost like gasoline and cars. Hey, once upon a time humanity lived without cars AND cell phones…hard to imagine, huh? thanks for your comment!

  9. Great post, Travis! I think no-contract plans are great because as you say, they put control back into the hands of the consumers. They work best when you don’t buy the latest generation iPhone, and Grayson at DebtRoundup has the right idea about purchasing unlocked devices from eBay. That being said, it doesn’t make sense for my husband and me to change to a no-contract plan because it would actually cost us more since we have a grandfathered data plan rate. Plus, we live in the sticks and don’t get coverage by Ting, Republic Wireless or other popular no-contract carriers.

    • Travis says:

      Oooooh, you have the grandfathered in data plan…..good for you! I don’t know what carrier you’re with, but you may want to double check if they have a no-contract offering now. I know both AT&T and TMobile have them…not sure about the other big dogs though. Great to hear from you!

  10. It all comes down to marketing, doesn’t it? I do agree the consumer should control but with the big cell phone companies, it’s still a bit of a mirage. Right now I’m still under contract but when it ends, I’ll have to figure out what’s best for me.

    • Travis says:

      I don’t know what carrier you’re with, Shannon…but you may want to check to see if your carrier has no-contract offerings, and if it would work for you. I was under contract with AT&T….and they allowed me to swap over. Since our phones are still very workable and we aren’t planning on upgrading anytime soon, we’re saving a nice chunk of cash each month!

  11. scarr says:

    I am planning on going “off contract” once my current contract ends. From the numbers I have crunched, I could buy a new phone, activate a non-contract plan and still save money over the life of the phone.

    It is interesting how paying for the phone on a no contract plan ends up being the same as having a contract, haha.

    • Travis says:

      You may not need to wait until your contract is over, Scarr….I dunno what carrier you have, but they may offer no contract and allow you to switch now. That’s what we did!

      As far as the two price paths being the same actual cost per month…yeah, quite coincidental don’t you think? *wink wink*

  12. Michelle says:

    I have Republic Wireless and am perfectly happy paying $25 a month. I DID have to side hustle out of the contract and to buy the phone but it was worth it. I was getting so angry every month paying $105 (with a discount) that I had to do something about it. I hate being tied down to a company. Might become my life’s motto.

    • Travis says:

      We shouldn’t have to be tied down to one carrier….if they really have the consumer’s best interest at heart, AND provide quality service at a competitive rate they shouldn’t NEED to hold us under contract. That’s a great motto, Michelle – stick with it. 🙂

  13. Hmmm, funny that you’re paying a premium for the phone under the 2 year contract when they make you feel like it’s a “free” upgrade each cycle.

    • Travis says:

      It’s like a sale that isn’t a sale, right? Sort of like jacking up the price, only to advertise 40% off….. 🙂 thanks for stopping by, Stefanie!

  14. Kim says:

    I have an older iPhone and am perfectly happy with it. It didn’t cost anything with our contract. I would actually love to get rid of the whole contract and go with something like Republic Wireless, but low cost carriers just don’t work in the boonies where we live. We do get a 20% discount through Jim’s work and he gets about $60 per month reimbursed, so we are paying about $90/month for two iPhone 4’s, so it could be worse.

    • Travis says:

      As I mentioned in previous comments, you may want to check to see if your current carrier has no-contract offerings. We switched to one with AT&T even though we still have 7 months left on our contract. The iPhone4 is a great phone…if it still services your needs, there’s NO reason to throw down the cash to upgrade! Thanks for reading!

  15. Tracy says:

    We are with AT&T. The old contract was $208 per month for 3 iPhones of which 2 were still under contract. My husband and I thought the bill was to high and were ready to switch even if we had to pay a penalty…figured it was less expensive in the long run. The AT&T salesperson not only put us in the no contract plan at $120 per month but also cancelled the rest of the other 2 phones contracts. One phone still had 12 months the other 18 months. He said they were running a deal that weekend we stopped by. We are much happier with this price. My phone will have to be upgraded soon so we need to figure out if it’s smarter to pay per month or all at once?

    • Travis says:

      That’s what they did for us too, Tracy. Even though all of our phones were still under contract (so we were still technically paying for them through our contract price), we were able to switch to the no-contract plan, and drop our bill. As far as smarter to pay per month or all at once….you’re going to pay full price for the phone so it depends upon what works for you financially. If you make installments, they don’t charge any interest so it won’t cost you any more. And you can pay off the balance at any time.

  16. I would look more to the service fee as opposed to the cost of the handset, as you allude to in part of your post.

    Premium phones are a loss leader for the carrier. They usually just break even in having you purchase them. They want to sell you their services, not phones and accessories. Those get you through the door. It is not pure profit. That, I can guarantee you. The phone manufacturer is the one rolling in dough because they have the devices that the carriers desperately want to be able to offer. Further, these phone manufacturers sell to many countries, so the size of your national carrier does not have much pull.

    The premium phones cost a lot, whether you buy them outright or through a carrier. The phone is always amortized over the length of the contract because this ensures the carrier is not left with an unpaid premium phone (on which they make VERY SLIM margins, if any).

    26 X $25 = $650 The 16G iPhone 5S on the Apple site is $650. If we are talking about the same device, you get an interest-free loan over the two years. If it’s the 5C we’re talking about, it should be $550 or $23 over 24 months. I am a bit surprised by the 26 months you mention. It would usually be 24 months, because all the carrier cares about is not being out on a device from which they can’t recoup their cost. Could this be rounding? It would be about $27 over 24 months.

    Well, your post is definitely food for thought. My husband and I are planning to get off contract shortly and will be keeping our iPhones and finding the plan that best matches our usage patterns.

    • Travis says:

      I thought the 26 months was a bit odd too…but if you are going to go for owning the phone outright, it’s 26 payments (at least through AT&T). As far as not making a profit…I’m not sure I agree 100%. if I’m paying $25 per phone for my 2 year contract, that essentially would pay for the phone (if not very close). But, they don’t just give you a premium phone – when my wife got her iphone 4S, it cost her $199. So, she paid $199 + 24*25 = $799. If someone takes one of the phones that costs $1…they still pay $25 * 24 = $600 for a phone that isn’t worth nearly that. That’s why I’m much more comfortable with the no contract plan because I pay exactly the retail price for the phone, or I go hunting on my own for a bargin.

  17. Peter says:

    I think part of whether you find it a good deal is whether you’re a new technology early adopter- if you like to have the newest and greatest of technology in your phone. I don’t care that much about that, as long as I have something that works. For me, I’m currently using a bit of a hybrid plan that costs me about $7/month via a prepaid plan. Here’s what I’m doing:

    I have an old Samsung flip phone with Virgin Mobile Prepaid – on a grandfathered plan where I just have to spend $20 every 90 days. That phone basically only makes phone calls or does texts – and it’s extremely cheap.

    Then, I have a HTC EVO 4G Android smartphone with FreedomPop Wireless that after you buy the phone ($100 or less if you buy one used and activate it) you get 200 minutes of voice calling free every month (more than enough for me), along with 500MB-1GB of free data every month and 500 texts. I use that phone for pretty much everything the last couple of months since I’ve had it – phone calls, texts and data – and I’ve been using my Virgin phone less every month. I haven’t completely dumped it yet because FreedomPop is somewhat still in a beta stage, and isn’t 100% reliable yet. If it continues getting better, however, I may end up dumping it and going with my 100% free smartphone plan.

    So yes, the prepaid and free phone plans do come with some compromises, but in my opinion you can save a LOT of money..

    • Travis says:

      Exactly right, Peter. If you have an inexpensive phone, OR you keep your phone for a long time, the no contract plan is definitely to your benefit. If you upgrade your phone every 6 months, then maybe a different option is better. Sounds like you’ve found a way to save quite a bit on your plan…..kudos to you!

  18. jefferson says:

    Great stuff, Travis..

    More than anything, it depends on what you are after.
    When I was buying a cell phone for my oldest kid, the no-contract Page Plus plan was perfect!

    But for me, it just doesn’t work. For one, I am going to want the newer technology, which isnt available on many of those discount plans. For two, I am going to use a lot of data. I conduct a lot of business on my phone and need that access.

    • Travis says:

      There are no contract plans that are unlimited talk/text/data too…..I know the Walmart family mobile no contract plan is that way (although they do throttle the speed somewhat). Thanks for reading, Jefferson!

  19. Honestly, I never tried using a postpaid plan, I preferred to use prepaid ones. I only use my smartphone by browsing the internet, calling my friends by using free applications.

    • Travis says:

      The nice thing about pre-paid plans is that you know exactly how much you have to use, and can “budget” the use of your resources while saving money. Good for you, Marie!

  20. Greg says:

    Thanks for the post. I haven’t had to go through the ‘upgrade’ decision before since we’ve always had a two-year contract with Verizon Wireless. My wife decided to upgrade her phone and I started looking into exactly what your post was referring to: better to do a device payment plan, or go with the two-year contract (since we’re grandfathered and can still do that).

    To make a long story short, over the course of 24 months (the two-year contract term) for the services we use we would be paying $3447.60 with a device payment plan, and $3297.60 with a two-year upgrade plan. Looks like a no-brainer, right? Let me sign my life away for another two years. But…

    When you consider the fact that the phone price for the initial upgrade with a two-year contract is $299.99, the total price for the two-year contract becomes $3596.60. So, in effect, the two-year contract costs $150 MORE than the device payment plan, and the cost of the phone effectively becomes….ready for it…..$900!! Whoa. That’s a nice reward for agreeing to stick with a carrier for another two years, isn’t it?

    This was all a shock to me, so I thought I’d post here and let other folks know to do a very careful comparison before deciding how to pay for their next smart phone. Hope this opens someone else’s eyes so they are more careful when they purchase their next ball and chain.

    Thanks again for the post, Brad!

    • Travis says:

      Thanks for posing the details of your experience, Greg…….your point is exactly right – ALWAYS do the math and know exactly what you’re getting into, and which direction is best for your specific situation, and needs!

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