Is pay-as-you-go the way to go?
News Room | Columns by CUB's Executive Director | Is pay-as-you-go the way to go?
May 23, 2010—For the first time ever, in the fourth quarter of 2009, the number of new prepaid wireless customers outnumbered customers signing up for more traditional contract-based plans.

A staffer at the New Millennium Research Council, an independent telecom think tank, chalked it up to the slow economy, claiming "the era of cell phone penny pinching is officially here."

Slow economy or not, paying for a pricey, two-year cell-phone deal that you don't need is never a good idea. One CUB staffer complained that her cell bill is the second highest she pays—"right under my rent!" She's not alone.

Fees, surcharges, and pricey extras like Roadside Assistance or Directory Assistance can quickly send a $30 monthly plan sky-rocketing, and that's not including punishing overage penalties of up to 45 cents-per-minute that can turn a talkative teenager into budget-busting time bomb.

But is a prepaid cellphone the answer?

Well, for the right consumer, yes.

Generally cheaper than contract-based plans, prepaid phones don't require a credit card, don't tack on exit fees or overage penalties, and most importantly, don't lock customers into lengthy contracts.

Prepaid phones and minutes are sold at wireless provider stores, convenience stores and major retailers, such as Target, Wal-Mart, Best Buy, or Radio Shack. They can also be bought online or over the phone.

While there are dozens of prepaid companies with varying service quality, prices, and phones, there are two basic types of plans: pay-as-you-go and monthly.

Pay-as-you-go customers buy packs of minutes, which expire as the caller talks or after a certain period of time. Once the minutes are used up, the caller simply buys more.

Monthly service provides a set number of minutes, texts, and data usage for a fixed fee. Customers prepay for the service each month, but aren't locked into a contract, and can exit the plan at any time. Monthly plans including unlimited voice, text and data, are available too, often at lower prices than contract-based plans.

Always check the carrier's coverage map to make sure your area has service. And read the fine print before buying a plan. For example, many pay-as-you-go plans offer low per-minute rates but charge a daily "access fee" of $1 on up. Others offer higher per-minute rates with no access fee.

Still, for a lot of customers, pay as you go may be the way to go. One particular plan offers 30 minutes of calling for $10, with the minutes expiring after 90 days. While the 33-cents-per-minute rate is sky-high, a deal like this could be perfect for someone who simply wants an "emergency phone." At about $3.33 per month, or about $40 a year, a cheaper plan is hard to find.

For more information, check out CUB's prepaid cellphone fact sheet.

If a prepaid plan isn't right for you, there still may be a way to save. Check out the CUB Cellphone Saver, created in partnership with Validas. The free, online tool analyzes contract-based bills from the big five wireless carriers and recommends ways to save. It's shown thousands of users how to save an average of more than $300 a year.

Maybe the idea of penny-pinching is new in the cell-phone world—but CUB has always lived in that era, and that's where we'll stay.