How do you choose between prepaid vs monthly plans?

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Answered by: Tyson, An Expert in the Plans and Prepaid Category
To be prefectly honest, the answer depends on you!

First let's take a look at the virtues of prepaid vs monthly plans - and then we can decide which one will be better based on your needs.

Why pick a prepaid vs monthly?

There are a lot of benefits that come along with getting a prepaid cellphone. The major one is of course, cost. Most prepaid phones are simpler and therefore don't cost as much for the actual phone itself. On top of that, you don't have to sign a contract and agree to a fixed monthly cost.

Another great benefit is that most prepaid cell phones can be purchased without ID. This is great for teenagers (get your parent's permission!) and others who simply don't have valid photo ID. Most providers won't take something like a student ID card, it normally has to be something issued by the government like a driver's licence, or your passport.

Prepaid cell phones are generally cheaper for those who use their cell phones very little.

With prepaid, you either pay per minute or per text. Some providers have a service where you buy a block of minutes or text messages to use at once instead of paying per minute or per message. As an example, some carriers will charge 15 cents per sent or received message, or offer a package of 250 messages for $10. Be careful when budgeting for text messages, as they are often charged for both outgoing messages as well as incoming ones.

Data usage is also pretty expensive with prepaid phones. If you get one that can go on the internet, it's often charged per megabyte used, and you can use quite a bit just loading a single webpage.

The final benefit of a prepaid plan is not having to worry about overage charges. When you pay ahead of time, the money has already been spent. You can't go over your minutes because when you run out of minutes, the phone stops working.

So what are the benefits to a monthly plan?

Well first, most companies offer two different ways to go monthly. With, and without a contract.

When they say contract, they're referring to an actual legal (and binding) document. These contracts can range from one-, two- or three-year terms. The benefit of a contract is it typically costs you less up-front for the phone. When signing a contract you will typically have to provide ID to prove that you are who you say you are. If you decide to leave your contract early they will have the right to ask for the monthly amount of your bill for the remaining amount of time on the contract. For example if you left with 18 months left on your contract and paid $40 a month you would owe $720) Most of the time they will also ask for an administration or early cancellation fee on top of that.

Contracts also typically require a credit check to be done at the time you sign up. This is basically the company checking on your finances to make sure that you have the money to pay for the bill for the term of contract. If you don't pass, they will either ask for a deposit, or put a "cap" on your account to ensure the bill doesn't go over a certain amount.

If you don't like the idea of a contract, most cell phone providers will allow you to sign up with what's called "month-to-month." The benefit is not having to stick with the plan for a set length of time, and not worrying about early cancellation fees. The downside is a phone that is $0 on a contract can be hundreds of dollars if you go month to month.

You might be thinking of signing up on a contract for the discount and then switching to a month-to-month plan. Most companies will let you do that, but they'll also ask you to pay back whatever the discount on the phone was.

Monthly plans tend to give a larger range of features, or more use of features than prepaid phones. For instance, with a prepaid phone you may pay $10 for a block 250 text messages, whereas a monthly plan may include 1000 texts, or even unlimited use of text messaging.

You tend to get more minutes in a monthly plan than you would spending the same amount in a prepaid plan. This is because monthly plans are better for providers - they know monthly customers are going to pay a certain amount every month. Monthly plans also tend to include a "nights and weekends" feature where calls made during a certain period of time don't count towards your monthly limit. Generally speaking, it starts around 6 or 7 PM and continues to 6 or 7 AM, and any time between 6/7 PM Friday to 6/7 AM Monday.

Lastly, monthly plans tend to include at least a little data (with phones that can access the internet) in the price. This helps you avoid the per-megabyte cost I talked about earlier. Generally speaking, any phone that can access the internet requires a plan that includes data. This protects you from overage fees. Be careful though, using too much data is one of the most common causes of getting charge overages.

So how do you choose prepaid vs monthly?

Well it comes down to how you're going to use it. Are you the kind of person that always has to be in touch with your friends and family, or do you only need it for emergencies?

If you need, or even just want, constant contact with your family, friends and workplace then monthly plans may just be the way to go for you. A monthly bill of $50 may look daunting to at first, but consider the example I've given above: $10 for 250 text messages. If your provider counts incoming and outgoing separately you could run out of messages in a couple of days and end up having to buy more time! Do that a couple of times a month and you're better off being on a monthly plan right away. And prepaid shares the dollar value with minutes, so if you make or take phone calls in that time you'll have even less messaging to go around.

Conversely if you plan on using your phone sparingly, a prepaid plan might be a better choice. Some providers will allow "roll-over" minutes or dollar amounts. This means any unused minutes or dollar amount on your account carries from month to month. It's a good idea to check with a potential provider if this is the case.

Finally consider features you want: data will most likely end up costing you more on a prepaid vs monthly plans. If you want to be able to check your e-mail, Facebook, or Twitter regularly you'll probably want a monthly plan. Long distance also tends to be less expensive when on a monthly plan.

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