Prepaid cell phones can save you money

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:

Consumer Reports had an article in its January 2009 issue about how to buy a prepaid phone. Also, check out the following from 20-Something Finance: A review of Net10's prepaid wireless service

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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