How do Prepaid Phones Work?

Despite technology, phone calls are still the preferred way to communicate. It’s the fastest way to reach out to someone and, most importantly, get their attention.

That’s the most scarce resource in a world full of digital distractions. If you don’t believe it, try sending an email or a chat message. See how long it will take to reply back.

With a phone call, the person instantly knows you’re calling (unless it’s on plane mode). But if you send a message, most won’t ever see it due to the dozens of notifications.

Plus, if you spend a lot of time outside, you may need an Internet connection as well. With the right phone plan, you can be as productive as if you were working from your desk.

Now, how much does it make sense to pay for your phone? There are so many free ways to communicate that it has become more of a complement than a necessity. That’s why you should look into prepaid phone plans instead.

How do Prepaid Phones Work?

How do Prepaid Phones Work

Prepaid phones are the most straightforward service you can expect. The carrier will only charge you for the data you used. No monthly fees, no long-term agreements.

If you don’t like it, you can switch phone companies on the same day. It’s that simple.

To prepay your phone, you pay your carrier based on the minutes and gigabytes you want. After the purchase, you can now use your phone. And if you want more data, you just pay again.

Most sellers will have upsells, so you can save on bigger purchases.

PRO: Pay as you go

Prepaid plans get you the most bang for your buck. You know exactly what you’re paying (no hidden fees) and you aren’t obligated to stay on yearly contracts.

Typically, you would pay a cancellation fee ($150+) for a contract plan, but that doesn’t happen here. Prepaid plans keep attracting customers because of convenience.

You also set a limit on how much data to consume this month. For example, you might forget you have 4G turned on, and you’ve been running videos for weeks. The service ends immediately after reaching the quota.

CON: Imposed limits

Just as they can be helpful, they can be annoying. Imagine being in the middle of an important phone call, and your provider ends the call because of time limits.

For example, you could get a yearly plan where you get 5GB per month. In a year, that makes 60GB. But you can’t access them right away. If you use more than 5GB, you need to pay extra.

The same applies to phone-call minutes.

Yes, you can get unlimited minutes and data with prepaid plans. But you don’t get as much value.

Compare how many minutes and GBs you spend per month on average. If you take the unlimited plan, you’ll likely overpay for something you’ll never use up.

PRO: Accumulative data

As you know, long-term plans offer better prices.

Here’s an extra benefit: you accumulate everything you haven’t used.

Imagine the plan offers 300 minutes per week and 5GB per month. If you sign up for three months or more, that makes 900 min and 15GB.

Maybe you only used 100 minutes and 4GB this month. When you recharge on the next one, you’ll have instead 500 minutes and 6GB.

Let’s say you get the three-month contract and don’t spend anything for two months. On the third one, you have 900 minutes and 15GB.

CON: Full-retail phone price required

You found an amazing deal: a high-end phone for half of the price!

As for most prepaid plans, you can only qualify if you paid the full price. You may qualify if you pay in full first and get a rebate later, but most stores don’t have this option.

Let’s say you get a $1000 phone for $600. On average, prepaid phones can cost you $60 (or less, depending on your data usage), while a contract plan costs ~$100. You pay $40 every month.

Assuming you pay every month, you’d have paid the same for both plans after ten months:

$1000 + $60*10 = $1600 (pre-paid)

$600 + $100*10 = $1600 (contract)

Assuming you’ll pay $1600, would you like to pay $60/mo from now on or $100/mo? It depends on the features.

But what won’t happen is $600 + 60*10 = $1200

Keep in mind that companies may change the introductory rates later. To avoid surprise expenses at the end of the month, learn more about cramming.

PRO: No credit score required

Prepaid phones may require you to pay the retail price. But contract plans require you to have a high credit score.

It’s not that you can’t get a contract phone. But companies are more likely to reject you because you may be unable to pay.

When prepaying, however, you only spend what you have. Such limitations wouldn’t make sense.

CON: Limited roaming capabilities

Typically with contract plans, you can access your services anywhere in the world. If you’re calling outside of your provider’s coverage area, you can do it for low prices (100% free at least across Europe).

In these areas, you can still make phone calls and use the Internet with other networks your phone detects.

What prepaid phones sell instead is international calls, which is different. You can go to any country for fair prices. As for roaming features, there’s either none, or they’re more expensive. Around $8 per gigabyte.

If these conditions apply, your monthly limits will be lower than in the country where you registered.

Prepaid or Contract Phone Plans?

Prepaid or Contract Phone Plans

How many minutes and data do you need? Regardless of the answer, you will get the most value for your money if you pay as you go.

If you’d like to just talk on the phone and not worry about limits, contract phone plans are better. You’ll also save money if you travel abroad often.

When your goal is to save money long-term, the best you can do is get a prepaid plan. And since you want to keep it for months/years, save even further by paying it all upfront.

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