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When people get cellphone service, most go with a postpaid plan. This type of plan requires a contract, and you pay for the service at the end of the month. Many of these plans also have special financing offers for new smartphones, so you don't need to pay in full upfront.
Your other option is a prepaid plan. You pay for service upfront, normally month by month. This isn't nearly as common. Case in point, T-Mobile has the most prepaid customers, but they still only make up about 20% of its customer base.
I used to have a postpaid plan, but I switched to prepaid several years ago. Even though prepaid phone plans aren't as popular, there are a few reasons they're well worth considering.
1. Prepaid plans are usually cheaper
If you're trying to cut back on your bills and boost your savings, switching to a prepaid plan could be an easy way to save. Mint Mobile's plans start at $25 per month, and it's currently offering a special with three-month plans for $15 per month. Visible Wireless also has prepaid plans starting at $25 per month. Connect by T-Mobile even has prepaid plans starting at $10.
For one- or two-line plans, you'll almost always get a better deal by going prepaid. It's closer if you need a family plan with several lines. Some carriers have discounts available if you get service for multiple lines through a postpaid plan. Even so, it's still a good idea to compare prepaid and postpaid prices so you can see which is more affordable.
2. There's no credit check required
Credit cards and loans aren't the only situations when you need to pass a credit check. When you apply for wireless service with a postpaid plan, the carrier runs a credit check on you. It does this to gauge the risk that you won't pay your bill, in which case it would lose money.
If you don't have a high credit score, you may be required to pay a security deposit to get a postpaid plan. The deposit amount depends on the carrier and the plan you want. Carriers typically return your deposit after you've made enough on-time bill payments.
With prepaid plans, you don't need to worry about a credit check. You're paying for service upfront, so your credit score won't be a factor. This also means the application process is faster and doesn't require as much personal information -- always nice if you'd like to reduce the risk of a wireless company losing your information in a massive data breach.
3. It's good motivation to pay for your phone upfront
Prepaid phone plans don't have the special financing offers you can get with postpaid plans. Some people look at this as a drawback, but personally, I consider it a plus.
When you finance a phone, you're locked into a contract until it's paid off. The standard contract length is 36 months -- a long time to be paying off a smartphone. These installment plans can also encourage overspending. You might think twice about buying the latest iPhone for $800, but for $23 per month, that's a different story.
Because I use prepaid plans, I always need to pay for my phones in full upfront. That has motivated me to keep my phones longer and to look for deals when buying a new phone.
Postpaid phone plans may be what most people use, but prepaid plans are often the best deal. Not only do they have lower monthly rates, but they also don't tempt you with lengthy financing agreements. And if your credit score isn't the best, that's no problem.
If you haven't done so yet, check out what prepaid carriers like Mint Mobile, Visible, and Connect by T-Mobile offer to see how much you could save.
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