Cellphone: prepaid / "pay as you go" or contract plan?

I've been puzzling about this myself, actually, so you ask your question about cell phone plans at a good time. As with any decision, there are pros and cons for both choices, so let me outline some of my thinking.

Prepaid Cell Phone Plans

As you know, prepaid is also known as "pay as you go" because you pay for the time you'll use in advance of using it. This is great because it ensures that you'll never get a surprise cell phone bill at the end of the month and is ideal for people on a tight budget. You just pay, say, $25 and then get however many minutes are covered by that amount. If you're at $0.25/minute, the math's easy: that's 100 minutes per month.

When my children are old enough to start using cellphones I'm sure that we'll get them prepaid plans so we can just tie it down to a minimum charge and once that's used up, well, then their phone is dead useless until the next month when it's recharged.

Every cellular provider I know about has prepaid or pay-as-you-go plans available that include either free or very low cost telephone handsets too, indeed, even companies like Target offer prepaid phone packages from Virgin Mobile and similar. With a lack of termination fees, no long-term obligation to keep the phone or service, a free phone and prepaid minutes, it's an excellent choice for many people.

Keep in mind, however, that incoming calls chew up minutes the same way that outgoing calls do, which is quite unlike a regular land line where you pay to originate the call, not to receive it. Forgetting about this can easily consume your entire monthly allocation before you've even figured out how to dial!

Monthly Cell Phone Contracts

Most cellular carriers actually prefer that you sign a contract and they usually offer substantial discounts on popular cellphones like the Motorola RAZR to get you to commit to a twelve or twenty-four month contract. A phone that might cost $300-$400 can often be purchased for under $100 with a two year contract agreement, for example.

There are a number of benefits to a contract, including lower per-minute fees and the option of adding various additional services (like three-way calling) to your basic plan. Since you pay after-the-fact for a given month, you can also use your mobile phone as frequently as you'd like without running out of minutes. This doesn't prevent you from being shocked by a huge bill, however, and I have certainly heard stories of people who ended up with $500-$1000 or more on a monthly bill because they didn't pay attention to minutes, called long distance to chat with a loved one, or similar.

Another advantage of contract service is that you're more likely to get three features that I think are invaluable for a cellphone: free roaming, free long distance and free "in plan" or "circle of friends" calling. The first two mean that you can take your phone with you as you travel on business or pleasure and that you can make calls from anywhere to anywhere (typically only in the United States) at the same rate. For many people calling long distance on their cellphone while in their house is substantially cheaper than that same call on a regular "land line."

The circle of friends or "in plan" programs can be a great boon too. If you find that you spend a lot of time talking on the phone with one or two people (perhaps your spouse and child) then these programs will let you communicate without charge and without the call time being subtracted from your monthly allocation. Nice!

The disadvantages of a contract are that you're locked into a set plan and provider (though many providers can switch your plan if you call and ask them) and that if you do want to upgrade your phone you'll find that there can be quite substantial penalties for doing so. That $300 you saved on the phone by signing a two year contract can suddenly turn into a $300 early cancellation fee.

Some of the important questions to ask (compliments of PC World Australia) include:

• Are there free calls to phones on the same network?
• Are there "free time" options?
• What is the choice of plans?
• Are there talk and/or text packages?
• What are the Internet/home phone/mobile phone bundles?
• What are the global roaming agreements?
• What are the service and warranty agreements?
• What are the penalties for breaking a contract?
• How do I transfer an existing mobile number?
• What is the coverage area?

Hope that helps you make a smart decision with your cell phone.