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There was a time when prepaid cellular service was considered to be nothing more than a third-rate alternative to contract-based phone plans in the United States.

There were a few reasons for this line of thinking. First, the big four carriers had done an effective job of brainwashing us and had relatively tight control over the market. Second, prepaid carriers generally had a very limited selection of handsets, poor cellular reception and pricing that wasn’t necessarily much better than postpaid.

In the last few years, we’ve seen a major transformation in prepaid. No longer is it only associated with teenagers and those with extremely tight budgets. The phone selection and reception has also greatly improved. In fact, most GSM-based prepaid carriers will allow you to activate nearly any smartphone you can get your hands on, as long as it is compatible with the network’s frequencies.

Additionally, plan pricing has dropped significantly in recent years, with carriers such as StraightTalk offering unlimited smartphone talk/text plans for as little as $45 a month.

Thanks to all these combined factors, the prepaid market has expanded dramatically in a relatively short period of time. In Q1 of 2012, 79% of all smarphones sold in the United States were activated to a postpaid (contract) plan, with only 21% going prepaid. By Q1 of 2013, prepaid had risen up by 11%, and has continued to climb upward throughout the year.


Advantages of switching to prepaid

The most obvious advantage for switching to prepaid is that you can save money, and a lot of it. While some folks reading this might be more than capable of affording their current $100+ cellphone bills, why should you spend more than you have to when you can get nearly the same service for as little as half the price? That’s right: half the price.

If the savings are really that dramatic, why aren’t even more folks on prepaid yet? The problem is that there is a false perception that prepaid carriers are still inferior in some way to postpaid, but in most cases this isn’t true.

Often enough prepaid offers more data, voice minutes and texting at a lower price than the contract plans. Prepaid carriers also use the same networks as the bigger cellular providers, and often even provide the same roaming features.

The only area where postpaid carriers generally are ‘better’ is in customer service, unless you go with prepaid services directly from AT&T, T-Mobile or any other the other big four carriers. Still, even if the customer service isn’t as good as you’ll find in a postpaid situation, it is still generally “good enough” to handle most customer inquiries — with a little patience.

Are there any other advantages besides saving money? Actually yes

  • You own your phone: it’s unlocked and you can do with it what you please. Not satisfied with T-Mobile? Switch over to StraightTalk. If StraightTalk doesn’t fit the bill, you have other options including AT&T GoPhone, AIO and more.
  • You can take a break without worry. While postpaid carriers sometimes allow an “account hold” to be placed when traveling abroad or while on active military duty overseas, there’s a lot of hoops to cross through first. With prepaid, you skip the drama and simply shut down service until you need it again.
  • Take your phone with you overseas without paying crazy international roaming rates. Because your phone is unlocked and ready to go, you can put a foreign SIM card into your device and use it while abroad. When you return home, it’s easy to put back the old card and return to the U.S. carrier of your choice.

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Okay, but what about the hardware costs?

There are a lot of folks that like the idea of saving money, but there’s one big hurdle in the way: starting costs.

With a contract carrier like Verizon, you get to buy your handset at a lower subsidized rate, somewhere between $100-$300 for most mid-to-high range handsets. Getting the same device unlocked and off-contract could cost you anywhere from $500 – $800 dollars!

The good news is that there are ways around this. One popular way is to find a gently used device on a trusted site like Swappa, which is an online marketplace that deals exclusively with the sale of pre-owned mobile devices.

For those that want a brand new handset at a killer price, you can also go the Nexus route. For just $349 for the 16GB model, the Google Nexus 5 is a high-end Android experience at a very affordable price point. The only potential downside to the Nexus 5 is its somewhat weaker battery and camera.

If you feel that paying $349 outright is still too much for a new handset, you’ll want to turn your attention towards the Moto G.

At just $180 for the 8GB model, this handset is an absolute steal. Just yesterday the handset officially became available for order in the United States and can also be found in several other countries across the globe. The Moto G is no Nexus 5, but the Moto G’s quad-core Snapdragon 400 CPU is still more than capable of providing a solid Android experience at rock-bottom pricing.

As you can see, getting involved with a prepaid plan doesn’t have to be difficult or pricey, as there are plenty of decent handsets that can run you well under $350 outright.

Real savings: Visualized

Ok, but you still have to drop your carrier and take a leap of faith, hoping that prepaid is everything you dream it will be. So is making the switch worth the initial aggravation? If you’d like to save $1000+ over the course of a two-year period — than absolutely.

To give you a better idea of what kind of savings you’ll get by switching to prepaid, we’ve created a chart that estimates the total cost of ownership for AT&T and Verizon versus just a few no-contract alternatives.

Now it’s important to note that certain costs like taxes and fees are rough estimates, but we’ve talked with real customers and scoured various carrier forums to ensure that the numbers provided are reasonably accurate. Of course rates can and will vary depending on your state (taxes), phone plan and other factors. Also keep in mind that we listed the Moto G for the no-contract carriers, as it has the same price as the on-contract Galaxy S4.

Obviously the Moto G isn’t going to provide quite as beefy of an Android experience as the GS4, but it’s actually pretty close considering how much cheaper the handset is. If you feel that GS4 vs GS4 would be a more even comparison, you simply need to add $427 to the total cost of ownership for all three no-contract carriers.

 Verizon (postpaid)AT&T (postpaid)AIO Wireless (prepaid)StraightTalk (prepaid)T-Mobile (post or prepaid)
Device$200, Samsung Galaxy S4$200, Samsung Galaxy S4$200, 16GB Moto G$200, 16GB Moto G$200, 16GB Moto G
Activation fee (one-time)$35$36$10 for SIM card$7 for SIM card$10 for SIM card
Monthly plan cost$60 for 2GB$50 for 2GB$55 for 2GB high-speed, unlimited at lower-speed$45 for 2.5GB high-speed, unlimited at lower-speed$60 for 2.5GB high-speed, throttled after this
Monthly access rate$40$45N/AN/AN/A
Estimated fees and taxes$15 estimated$15 estimatedFees/taxes included in pricing$5 estimated$5 estimated
Estimated total ownership costs (over 24 months)$2,995$2,876$1,530$1,407$1,770

Looking at the chart it becomes obvious just how much you really do save when you switch over to prepaid. On the high end, Verizon service with 2GB of data costs as much as $115 after tax, making for a $2,995 total cost of ownership over two years. That’s $1,588 dollars more than StraightTalk, or what would be equal to a saving of about $66.17 a month!

Bottom-line, there are few good reasons to stick yourself with a contract these days. So do yourself a favor and stop paying more than you have to by going unlocked!