Last week, I spoke with personal-finance writer Greg Karp about how young adults can save money. We brainstormed ideas for one of his upcoming newspaper columns. “I’m willing to bet that many young people can save money by cutting back on their cell phone,” I said. “It’s kind of shocking how these have become a Need instead of a Want.”
“Yeah,” Karp said. “And what about prepaid phones?”
“I don’t know anything about them,” I said.
“They’re great,” Karp said. “My wife and I are saving hundreds of dollars a year by switching to prepaid phones. I’ll send you a link to an article I wrote.”
It turns out that Karp is something of a prepaid phone evangelist. But no wonder! In this piece from last December, he describes the benefits of switching two cell phones in his household to prepaid:
The net result is savings of about $800 per year, compared with a family plan through a major contract wireless carrier. I haven’t missed my former plan at all. And I’ve cut my monthly cell phone cost to less than $10. My reception and call quality are actually better.
Karp documented his plunge into prepaid phones with two posts to his blog. In the first, he explains why he decided to make the change. In the second, he actually describes the process of switching to prepaid. (This last post was very helpful to me. My big hang-up on making these sorts of changes is figuring out how to actually do them.)
I’m in the middle of an iPhone contract with AT&T but I generally don’t come anywhere close to using all of my 450 monthly minutes. (I had accumulated thousands of rollover minutes until I blew those all away with a phone-intensive business project in March.) I’m willing to consider moving to pre-paid once my current contract is over. When I do, I’ll check out the following providers:
- Tracfone, which offers some phones with “double minutes for life”
- NET10 is another prepaid cell phone provider
- T-Mobile prepaid plans
- Virgin Mobile calls their prepaid plans “pay-as-you-go” (as do many other providers)
Consumer Reports had an article in its January 2009 issue about how to buy a prepaid phone. For more information on the switch to prepaid cell phone service, check out the following:
- 20-Something Finance: A review of Net10′s prepaid wireless service
- ConsumerAffairs.com: Prepaid wireless plans can save time and money (this is a great article on the subject)
- Consumer Reports electronics blog: Prepaid cell phone service: A growing way to save money
- Consumer Reports money blog: Prepaid cell phones can offer savings
That last article contains some shocking numbers. In the U.S., only 16% of adults use prepaid phones, but:
Elsewhere around the world, prepaid is the norm. Prepaid market share is 35 percent in France, 66 percent in the United Kingdom, 76 percent in Hong Kong, and 90 percent in Italy, according to a recent Federal Communications Commission report.
Basically, major consumer advocacy organizations are proponents of prepaid cell phones, and they’re beginning to catch on among the financially savvy. But so long as it’s more profitable to pitch traditional cell plans, you’re not likely to see a mass movement to prepaid in the United States.
Addendum: Consensus among the commenters seems to be that prepaid cell phones make sense for those who are low-volume users. If you’re a heavy cell phone user, you’re probably still better off with a contract. Your best bet is to spend the time to run the numbers.
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Thanks for this post! I have been toying with the idea of geting a pre-paided cell phone (I have only a land line) for a two years now.
Still no great need, just a want. I have been overwhelmed whenever I went to a counter or looked at phones so this is a good intro post (with good links) for me.
Thanks again!
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I agree it could save me money on basic phone service. I don’t use many minutes in general and most of the people I talk to use the same service provider so the calls are free. As a big user of unlimited multimedia and texts on my phone, I don’t think prepaid phones are the way to go.
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I switched from contract to PAYG last year (on Orange in the UK). It was as easy as ringing them up and saying I wanted to switch. New SIM arrived in the post, stuck it in, registered it and put on some money, and I was away – I even got to keep the same number.
Before I switched, I went through all my old bills (for about 18 months), and made a spreadsheet with billing amount, number of minutes and number of texts (I don’t use other stuff). Then I worked out how much that number of minutes would have cost on the proposed PAYG plan. As soon as I did it, I realised I’d been literally throwing money away for over a year, which was a big incentive. So far, I think I spend less than £10 a month in total.
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I switched to pre-paid about 5 years ago – my cell phone costs are about 1/3 of what they used to be.
Keep in mind this plan is perfect for someone like myself who doesn’t use their phone very much. If you rack up the minutes then it might not be so great.
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Yup. I now pay about $25/month for my cell phone usage. My usage hasn’t changed at all, I just switched to prepaid. And that price includes everything; I don’t get a bill later for taxes, etc. I don’t really talk on the phone much; someone who does use the phone a lot would not find this as useful.
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I have been thinking about getting a pre-paid phone for a while now. I’d been holding off because when I looked at Verizon it seemed like the minutes expired if I didn’t use the airtime within 30 days. Thanks for this post, it was helpful and provided links to other plans that don’t seem to have that feature.
Of course, the cheapest thing is having no cell phone at all, which is what I have now, so maybe spending even for the prepaid phone isn’t the best plan…
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Prepaid is good if you don’t need the data plan on your mobile.
Take the iPhone, in theory you need a plan and can’t switch to prepaid unless you do some magic on the phone. But, even if you have prepaid, you lose being able to access data unless you have access to wifi.
I just wish there was also a prepaid data plan on phones.
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You really have to do your research, some of the companies have “per day” usage fees, you pay 1.00 every day you use the phone and then a minute fee (usually very low). By the time you run the numbers you are better off with a low minute contract. The method I prefer is by minute charges only, although the fee per minute is higher, if you don’t use your phone that much you can save a lot of money. $100.00 on my wife’s phone has lasted more than six months; her usage is very low.
I agree that these things have made their way into most peoples “needs” categories. I also can’t stand the way our culture thinks we all have to walk around talking on them all the time.
I know this is shocking but there was a day when we didn’t have cell phones, and we all made due just fine. Yes, they are convenient, yes, they can save time, no, you don’t have to walk around with one (or worse yet, a blue tooth((Look at me! Look at how important I am!)) to your ear all day long, save up some of that conversational energy for when you get home, everyone around you doesn’t want to hear about what song you have mastered on rock band!
Ok, got off track there, yes, prepaid phones can be a great deal. I advise you do a spreadsheet, take your average per minute usage from your contract and figure out what your per minute charge would be with a prepaid setup, don’t forget to include daily usage charges if they roll like that, don’t forget charges for text messages either. I think a lot of the companies are trying to make it so you start thinking about a “cheap” contract, making prepaid more of a choice for those with bad credit or those who don’t like contracts (me).
One thing, I don’t think you could use a prepaid setup with a data plan so your Iphone may not work with prepaid, not sure about that.
TW
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Coverage is still something to take into account when switching carriers – try to read reviews and ask people you know who use the network you’re considering joining in the places you’re most likely to use the phone.
However, if you use your phone heavily, prepaid isn’t necessarily cheaper.
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I’ve never really considered this an option until recently. Next month, when we move overseas, we are going to be trying this set-up for the first time. I think it’ll work out for us well since we use such low amount of minutes anyway.
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I switched to prepaid over two years ago if you use page plus cellular you can even keep using your verizon phone. It has saved me a bundle and I still have my music player, camera etc…
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I am a huge fan of the Tracfone. I have been using them for the last 5 years, because I really need one when I occasionally travel. The best deals can be found on their website, with packages were you can get a phone with your year’s subscription and minutes for the same price you pay just for the service. If you talk all the time on your phone prepaid is probably not for you, but I seldom use mine so this option works the best for me.
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Agreeing with Andy J. (#1).
When we used our phones as “phones”, I definitely only used around 100 minutes or so a month. Now, however, we use our phones almost constantly as miniature computers, for texting, surfing the web, checking email, etc. While we recognize that it’s more of a “Want” than a “Need” to be able to do all that, it’s incredibly useful since both my husband and I travel regularly for work. The prepaid plans aren’t as good for that type of usage.
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I switched to a prepaid Tracphone a little over a year ago. On the one hand I love not having a monthly payment. I don’t use my phone often. It works for me right now.
There are some drawbacks I have found though. The battery does not hold a charge and hasn’t for 6 months or more. Of course since I bought my cheap phone at Walmart there is no warranty or anything to get this taken care of. I charge the phone fully, don’t even use it and within a couple of days it is dead. I have to stay on top of charging it frequently.
Also, when I purchase minutes I am only adding 3 months of service. So every 3 months I spend $20 or so to add minutes that I don’t even need just to keep the phone active. A pain. But in order to get more time added I have to buy a much bigger minute card (that I don’t need) that is more expensive. Plus with a prepaid phone, there aren’t a lot of features. I think you can get nicer phones than what I bought, but still can’t get all the features of other phones. This is fine with me, but something for you to consider.
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I bought a Tracfone prepaid phone and minutes for my grandmother and it’s been perfect for her. It was less expensive than adding her to the plan I have and it fully meets her needs. We’ve considered switching our phones to prepaid, but like J.D., we’re in the middle of a contract with our current provider.
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The problem is that most cell phone companies will not let you switch to prepaid AND port over your old number. Additionally, most of them make you buy a new phone as well, from a very limited selection. I think prepaid is a great idea, but the providers do not make it easy to transition!
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I just went to a net10 phone, I found all of the plans that I looked at start at 50.00 dollars a month(plus sign there 2 year contract, no thanks!), I really don’t use my phone enough to justify 50 dollars a month for service along with the taxes, I figure for me it can cut my cost in half. I like the plan because it is straight forward and you pay for what you use, if you need to talk more one month obviously it will cost more but if you don’t use it, it costs nothing. It is also a way to keep yourself from accidentally going over your plan minutes and getting a huge unexpected bill. I have known a few people who received 500+ dollar phone bills after adding kids to there family plan. Not something that I am up for.
I figure most months I will not come close to spending the 50 dollars for the plan which would be 500 minutes, so I guess this works for me, but may not work for everyone.
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We switched to prepaid a number of years ago and pay about $15 a month vs over $60 with our previous plan. Granted, we don’t use our phones that much, so it made sense for us. It wouldn’t make sense for someone like my Dad who calls his Mom and sisters all the time (long distance) on his mobile b/c they are on the same plan as him.
We always buy a prepaid plan when we go to Australia every year for 3 weeks, so we have a phone while we are there. We just buy a sim card and put it in a old phone that his parents keep for us to use. It works out really well. Then his sister uses up whatever minutes we don’t use to help alleviate her outrageous mobile bill that she has every month.
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We just switched our cell service to pre-paid (stayed with Verizon though). It was a lot easier than I thought, and we got to keep our phones and numbers. I had run the numbers based on our actual usage over the previous 6 months and we’d be cutting our average bill in half – between the two of us we were using, on average, about 150 minutes of a 500 minute plan. We’re not big texters and we never use e-mail/web on our phones so it made sense for us. Most plans let you look up your usage online and you can calculate it out for yourself to see if the savings make sense.
@ Coupon Artist (#5) – the length of time before Verizon’s pre-purchased airtime expires depends on how much you purchase at once. If you buy a $100 credit, for example, it’s good for a full year. I estimate it will take me about 4-5 months to run through $100 of usage, so it works. If you’re happy with Verizon definitely consider this.
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As others have mentioned, pre-paid is great if you don’t use your phone that much. I switched over to T-Mobile a couple of years ago and it’s been great. $100 gets you 1000 minutes that don’t expire for a year. I’ve been going about 9-10 months between refills keeping my yearly phone bill well under $200.
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I switched to T-mobile prepaid, bought $100 worth of minutes up front, got my phone free after rebate. That got me 1000 “points” basically – both talking minutes and text messaging fees reduce the pool of points, and they last 1 year. The 1000 easily will last me the full year which has lowered my cell bill to $8.30 a month – down from $44 on Verizon. I strongly recommend switching.
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I’ve used a Virgin Mobile PAYGO phone for years, first in the UK and now in the States. The UK Virgin Mobile plan was much better, in my opinion, because it allowed me to do limited Internet browsing through my phone at the same rate as my usual per minute calling cost — to check my e-mail through the US phone, I’d have to buy an extra ‘Internet package’. I could also make international calls with my UK phone, which I can’t do with my US phone — and the UK phone minutes don’t expire, again unlike my US phone.
Then again, PAYGO services are a lot more competitive in the UK (or rather, anywhere that isn’t the United States). It’s easier to find a better deal overseas.
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A prepaid phone costs me about $80 a year since I mostly use it when I’m on day shift and I need an appointment or whatever and can’t be home to call. I’m not much on phone gabbing so Tracfone is just right for me.
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My family has used prepaid for at least 5 years now. So much cheaper than a regular monthly.
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I ended my contract with Verizon after too many instances of charges I nor they could explain. I had $39.99 plan that constantly ran me over $50 and $60. I signed up with Virgin and no longer worry about my bill each month.
I realize with Verizon I was making calls just because I had the minutes not because I needed to and still had 300-400 remaining. Now I have plenty of leftover minutes and they actually rollover!
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I’ve only ever used pre-paid. I use Virgin Mobile. I don’t have a landline now and for my usage, I found it cheaper than either a landline or a contract. Virgin does have monthly plans. I switched to that about 2 1/2 years ago when I moved and ditched my landline.
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Thanks for doing my research for me. I’ve been thinking about looking into this for a few months now. Seems like a good way to personally protest all the iphone/blackberry hoopla that everyone is subscribing to these days.
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My husband & I switched to Net10 two months ago. We used to have a plan where we shared 500 minutes a month & we barely used half of those. We’ve dropped our cost from about $90.00/mo (after taxes, fees, extra charge for texting plan, etc.) to $30.00/mo. We were able to port our numbers with us, so nobody knew the difference. They work great (although when I’m wearing a headset working & the phone is on my desk, I can tell when a text is coming in because I get some strange static on the headset. Weird.)
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“I’m in the middle of an iPhone contract with AT&T but I generally don’t come anywhere close to using all of my 450 monthly minutes.”
You can actually switch to the 200 minute “Senior Citizen” plan for $10 less a month, if you ask nicely enough. ATT let me do it yesterday, although I had to call twice in order to get a nice enough customer service rep.
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I use a bit of a unique system. I was able to get a GrandCentral number back before Google bought out Grand Central and re-branded it into Google Voice. This allows me to give out one number that will ring all my phones, including my Net10 phone, my MagicJack VoIP phone, and my work phone. I use the VoIP phone whenever I’m at home, and the work phone whenever I’m at work. This allows me to minimize my cell phone use, which is the costliest portion of that setup. It’s a little bit of hassle to get all this working together, but its worth the savings. Unfortunately, Google Voice isn’t open to everyone yet, so not everyone can use this setup, yet.
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I also have Virgin Mobile. I used to have AT&T (Cingular) and I rarely if ever used the phone. When I went to cancel it, the customer service rep didn’t even try to convince me to stay, because it was obvious that I was wasting my money and probably paying upwards of a dollar a minute on my plan.
Yes, I think the calls on Virgin Mobile end up being around 40 cents a minute and you have to top up your account every month, but it still beats a plan for someone like me who only wants a phone for occasional calls and emergencies.
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This is something I’ve thought about for quite awhile now. My contract is up in July and I will think about moving then. My wife and I have a family plan that ends up being pretty affordable compared to the plan I had before we went family, so that will make the decision a little tougher. I definitely see how a prepaid plan could save money.
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My Mom and I switched to AT&T GoPhone over a year ago. We both had regular AT&T contracts and neither one of us used our phones much, so we each paid @$35 per month to talk for maybe 10-25 minutes. Ridiculous! Now we buy $25 blocks of time that are good for 3 months and the extra rolls over when we buy the next block. Unless my phone usage suddenly rockets, I don’t see that I’ll ever go back – it’s just too much wasted money.
For anyone who wants to know, there are two options on how to do the pre-paid phones with AT&T. You can have a $1 fee for each day you use the phone with each minute costing $0.10, or you can just pay a flat fee of $0.25 per minute. I’m on the $0.25 per minute plan, since I keep my phone calls short and sweet.
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I’ve been perfectly satisfied with Virgin Mobile since ’04 … and saved literally thousands of dollars at this point. I use the phone very occasionally and send a few text messages from time to time.
My “bill” ends up being under $10/month most of the time.
Whenever my phone dies I’ll likely look into another handset that will give me some Internet browsing capability. There are a few occasions where having access to mail, mapping service or google would have been very handy, but they aren’t so common that I can justify $40-80/month for a smartphone and data plan.
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I’ve been using T-mobile prepaid for almost a year now and I haven’t looked back. I put in $100 and it normally lasts me about 6 months. I only use the phone for emergency. All my friends and family stay connected via Facebook, email, web chat, Google chat, etc. There is no need to chat on the phone.
I have to say I’ve been fighting back on getting an iPhone. I am looking at getting an iPod Touch instead, but keeping my existing prepaid mobile.
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If you go pre-paid, do not become a minute miser! I have relatives who are on pre-paid mobile and they go around asking to borrow other people’s phones. Their excuse is that they pay per-minute. It would be different if they were retired or something but they are not and I can’t tell you how annoying it is when I get put on the spot like that.
I can’t go pre-paid because my cell is my only line and I need to maintain a data connection for work. But that doesn’t mean I have unlimited minutes…I still pay for mine.
So remember, if you go pre-paid it is not a license to bemoan the cost per minute of your cell phone service and ask other people to foot the bill for you.
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My wife and I switched to prepaid after our contract was up in August. So far, we’ve averaged about $32 a month for two phones with Net10, compared to our former carrier’s least costly family plan at about $85 a month with taxes and fees. Now the only taxes we pay are sales taxes on the minutes we buy.
It took a few days to port our existing numbers, call quality has been good (Net10 uses/leases T-Mobile’s network in my area), and we haven’t looked back.
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I have a T-mobile pre paid phone. I paid $100 for 1100 minutes and $20.00 for the phone. There was no activation fee and my minutes are good for one year. I can check my balance online. It is great. It works for my lifestyle as I am a homemaker and stay at home mom. I only need the phone for emergencies or to take with me when my daughter and I go walking. I love it and recommend it to anyone who doesn’t really need a cell phone for daily use but just to have one in the event of car trouble or a power outage in thier home.
Great post JD!
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I’m a low volume user – I basically only turn my phone on to use when I need to or if I tell someone to call me. I’m tied to my landline because I can’t stand to carry a phone with me EVERYWHERE I go, including everywhere in my own house. I find it terribly annoying. So I keep my landline and I go with Virgin Mobile for my cell phone. Its the price of the phone, plus at least $20 each quarter and the minutes do roll over as long as you activate the next $20 before the end of your quarter.
I buy a $50 phone (there are cheaper ones) about once every 3 years. So my total cost is about $118/year for a cell phone. It works great for me.
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I usually send 400-600 texts a month, so prepaid isn’t for me.
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Don’t know if this would work for us…husband uses his phone day and night and 13 y-o daughter texts and uses hers as well, though only a quarter of the time that my husband uses his! Because of his ‘habit’, we wouldn’t benefit from pre-paid. Plus, I have a 12 y-o sons who’s now bugging for a phone as well. Next we’ll be adding the data portion of the plan for an extra $15!! UGH!! Can’t stand it– Between the cells and cable t.v., technology is sending us to the poor house! I’ll be making the kids gets part-time work ASAP!
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@Holly (#41)
I don’t have kids, so take what I’m about to say with a grain of salt…
I do not get the “kids and cell phones” thing. For so many kids and young adults, it’s become an expectation that they’ll have a cell phone. I think it’s crazy. However, I think you’re on to something. If your children want a cell phone, make them earn it through a job. This seems like a perfectly fair exchange. They spend their summer planting cauliflower, they earn enough money to pay for a year of cell service. (I use the cauliflower example because that was my first job…)
I know I probably sound like a grouchy old man on this one, but I don’t understand how cell phones have so quickly become a Need for kids and young adults. My 9-year-old nephew has one!
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I wrote a post a few months ago on the benefits of prepaid phones. I’ve had both Virgin Mobile and T-Mobile and they have saved me hundreds or even a thousand dollars or more over the past several years. They are great!
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I switched to a TracPhone about 6 months ago and I love it. I don’t use very many minutes and I dont use any multimedia/texting so it is perfect for me. I bought one of the phones that comes with double minutes for life (not hard to find). No camera…just a phone, just what I want. I have only had to buy 2 minute cards ($20 each with 90 days service) since I have had it. So $40 for 6 months is about $6.66 a month (I did pay like $25 for the phone too, and it came with a few minutes and a months service or something like that). I also get great reception / call quality. I am very pleased with my phone and the savings. I recommend pre-paid to everyone who doesnt talk alot or need multimedia.
If I want to talk for a long time I use my landline. Yes I still have one. I use the “Community Caller Plus” plan that Verizon offers, and pay less around $26 a month. The plan is unlimited as long as you are calling in your area. If you call far from your town (but not quite long distance) then there is a per minute charge. Luckily NONE of the numbers that I frequently call have the charge. Oh yeah, no caller-id /call waiting or any other bells and whistles either. Doesn’t bother me. Never had caller-id growing up and besides, I like the suprise when I answer
. So far as call-waiting, if my landline is busy, people know to call my pre-paid phone (poor man’s caller-id LOL).
So for about $33 a month I can make calls on the go if I NEED to, and I can talk at home as much as I WANT. I think that’s a good deal.
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I had a Tracfone, and had bad reception most of the time. Tried a contract with US Cellular, and had bad customer service there. I’ve been on T-Mobile pre-paid service for about 4 years now and love it. Great reception and customer service
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One thing to keep in mind is that many young adults do not have a landline and use their cell phone all the time instead.
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When I needed a cell phone for my business I bought a used Razr for $50 and bought a $100 Pay as you Go prepaid minutes card.
If you buy $100 worth of minutes at a time they don’t expire for a year! (Smaller denominations expire within a month of activiation.)
I’ve had my phone for a year now and I’ve spent $200 on minutes and there is still $90+ dollars on my phone.
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I totally agree with JD on the “kids & cell phones” thing. We have 2 teen boys. One has a Virgin Mobile PAYG and the other T-Mobile PAYG. They both bought their own phones and pay for their minutes with allowance or job $$. There is no other option, both my husband and I have T-Mobile PAYG too. Even my businss phone is PAYG Tracfone (it’s not a big phone need business). In all with the 5 cell phones it must come to $35-$40 a month. We got rid of our land line and have a VOIP phone with our cable company that is $15 month. So our grand total for 2 teens, 2 adults, 1 business, both home and cell phones is $55 a month at the most – not bad. I must add we’re not gabby phone attached to the ear type people.
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J.D. — phones for kids are doable now because they are relatively cheap and provide a useful function. Pay phones aren’t as ubiquitous as they once were, and there are several on the market that will allow only a handful of pre-approved numbers to be programmed in to make and receive calls to.
I do agree, though, that a prepaid phone would be a good tool to teach children about how to budget, and I’ll likely look into it when my daughter is old enough. Of course, by then it’s likely that mobile service will be (a low) flat-rate for unlimited talking pretty much anywhere, very similar to how land lines are nowadays.
Of course, kids also need to learn some responsibility, too — like being home at a certain time, letting the parent know where they are going, etc. The phone doesn’t remove that requirement from them.
And there are any number of OTHER technical advances that seemed “out of reach” for kids in the past — cars, radios, tv’s, video games, computers, MP3 players, etc. But tech keeps getting cheaper and cheaper, and making things like 3-4 computers in a household using one network feasible. Think how impossible and outlandish that would have been in 1985, or even 1995!
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I, like many, have thought about using a pre-paid plan but have been hesitant because of the catches many come with. Even though I want to lower my current plan, I have not because I do not want to be in another contract. I would love to see you do an article comparing cable, satellite, vs usage of playon with hulu/joost/etc. This is another area in which I would love to make a change but it seems technology in the US is not quite there yet. I could save a ton with satellite vs cable but do not want to enter into a two year contract.
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