Wireless carriers are constantly competing for your business with marketing tactics that include free hardware upgrades, expanded data-sharing plans, flexible contract options, and faster communication speed. Understanding what you’re buying and how much it actually costs can be difficult.
Let’s take a look at some examples.
Contracts versus Month-to-Month Plans
One of the confusing choices is between a month-to-month plan and a contracted commitment. Let’s take a look at this example:
- One of the major carriers offers a hotspot modem service. You can buy the gadget for $200, or get it for free if you sign a 2-year contract, but which offer should you take? No matter which way you go there is a $20 per month access fee, and you need to also have cell phone service with that carrier. That’s $240 per year, so the gadget wasn’t really “free.” Signing a 2-year contract locks you into the service while it also guarantees your pricing plan for two years. You can terminate a month-to-month contract at any time, for any reason. The penalty for canceling early is generally around $175, though, and you are not required to pay the remaining months of access fees on the contract.
In the example above, the worst case scenario for someone who signs the contract is that they get a free gadget worth $200 and can potentially lose only $175 by cancelling. They still come out $25 ahead versus doing a month-to-month deal.
Do your own math to figure out the cost for breaching your contract by studying the specific terms and conditions. Crunch the numbers and make your decision based on a comparison of the pros and cons. Oftentimes it is cheaper and less of a financial risk if you go ahead and sign the contract, even if you do break it prematurely.
Are Free Phones Really Free?
Phone carriers market services that include a free upgrade of your phone. If you’re a steady customer, you’ll likely receive additional offers every year or two, but we all know nothing is free in this world. Here’s how it really works.
- You sign up for a 2-year service and the carrier offers you a free smart phone with a retail value of $400. In order to add that device to your calling plan you usually pay a monthly access fee. If the fee is $40, then over the period of one year you pay your carrier $480, just for the privilege of being their customer and subscribing to their calling plan.
- Meanwhile the carrier doesn’t pay full retail price for the phones it gives away, so chances are that in one year’s time the carrier has already made a 100 percent profit, or more, on the so-called “free” phone you were given. Over the lifetime of a full 2-year contract, that free phone will generate $960
- in access fees alone, not counting the money the carrier makes from your data, text, and talk. You ultimately wind up paying plenty for those free phones.
The above scenario doesn’t mean that free upgrades aren’t a good deal. As long as you still have to pay access fees and phone usage charges, you might as well take the phone they’re offering to you. Free phone upgrades aren’t charity – they are sophisticated marketing incentives.
Is Insurance Coverage a Wise Investment?
When it comes to insuring those expensive smart phones, make sure you read the small print on your policy. The insurance offered by cell phone carriers is reasonable and it covers a lot of different kinds of loss – from theft to accidentally dropping it on concrete or in the pool.
The premiums are affordable, too, with coverage for a $400-$500 gadget running about $10 or less per month. The tricky part is the deductible, however, because it can be as high as $200 on a typical iPhone policy. So if you pay $100 or more a year in monthly premiums and also have to fork over $200 as your deductible, the value of your coverage is not that wonderful. Suddenly you’re paying $300 to a company to reimburse the loss of a $400 phone. You may still come out ahead, but it won’t be as good of a deal as it appears at first glance.
Looking for an alternative? Many credit cards offer extended warranty protection. Just purchase your next smart phone with your credit card –check the terms and conditions first- and you should be covered for at least the next year. No monthly fees, no extra charges.
Do You Pay $75 for a $60 Phone Bill?
Ever buy something from the grocery store tax-free? Not likely, and a phone bill is no different. The taxes added to wireless bills tend to fly under the radar because most consumers just pay them without a second thought, but they can be exorbitant. According to CNN local, state and federal government taxes add an average of more than 17 percent to every cell phone bill in America. This was originally reported on a couple years ago, explaining that the taxes added to wireless bills can go as high as 23 percent or more in some states.
Jeff’s Note: I recently wrote about lowering your cell phone bill and how I was deciding between two carriers. Well, Republic wireless released the motoX as their new phone, and that made my decision for me. As of Thursday, you could buy a moto x through republic for 299 and a plan as low as 5/mo.