Prepaid vs. Contract Cell Phone Plans – Differences, Pros & Cons

These days, cellphones are more popular and powerful than ever before. According to Pew Research, 96% of Americans own a smartphone, and the days of clunky flip phones are long gone.

However, while mobile technology and accessibility keeps improving, costs haven’t taken a hit. In fact, according to the Bureau of Labor Statistics, the average person spent nearly $1,200 on their cellphone plan in 2018 and have seen consistent increases in cost.

Thankfully, there are several ways to lower your monthly cellphone bill without sacrificing service quality. A common strategy is to switch to a prepaid phone plan, which is often cheaper than fixed-term contracts with major carriers.

If you want to find a cheaper phone plan and stay flexible, prepaid phone plans are certainly worth considering. However, you should understand the differences between prepaid phone plans and contract plans, as well as the pros and cons of making the switch.

Prepaid vs. Contract Cellphone Plans — What’s The Difference?

If you haven’t done a lot of cellphone shopping, it’s easy to get confused when searching for your next plan. Additionally, you might hear the terms “prepaid,” “postpaid,” and “no-contract” plans thrown around.

A prepaid phone plan is what it sounds like. You pay upfront for your monthly phone usage, deciding how many minutes, texts, and gigabytes (GB) of data you think you’ll use. When you run out, you have to wait until the next month for your minutes, texting, and data limits to refresh unless you buy more during the month to hold you over.

In contrast, contract cellphone plans are more rigid arrangements that are common with major service providers like AT&T, T-Mobile, and Verizon. Plans are typically two years long, and you choose from a variety of monthly plans that include different amounts of talk, text, and data. The cost of your phone hardware is usually built into your monthly bill even though many contract phone plans advertise new phones as being $0.


Advantages of Prepaid Cellphone Plans

The differences between prepaid and contract cellphone plans might seem irrelevant. However, there are several advantages of prepaid cellphone plans that also cut costs. If you want to save money on a tight budget, prepaid carriers might be your best option.

1. Lower Monthly Cost

The main advantage of prepaid phone plans over contract plans is lower pricing. With a prepaid service, you have the freedom to buy exactly what you need. If you only text, SMS-only plans are available. You can also find plans that offer unlimited calling and data if that’s what you need.

For example, Verizon’s unlimited talk, text, and data plan is $70 per month for an annual contract. Its unlimited prepaid phone plan is $60 per month, which is $120 per year in savings for the same services. Additionally, if you don’t need unlimited data, you can find prepaid options that are even cheaper compared to their contract plan counterparts.

There may be exceptions, but on average, prepaid phone plans are almost always cheaper than their contract equivalent. Plus, many prepaid plans don’t charge an activation fee, so you don’t have to worry about an expensive first month.

2. Flexibility

Another advantage of using a prepaid phone plan is flexibility. Contract plans usually last two years. If you want to switch carriers for better service or to save money, you typically pay a termination fee or have to buy out your contract before leaving.

This fee often makes it impossible to leave before your contract is up because the cost is simply too high. With prepaid plans, there aren’t contracts to hold you back. If you want to try a new cellular service, you’re free to make the switch at any time. If you’ve ever been stuck in a costly contract, you’ll understand the benefit of this freedom.

3. No Credit Check

Contract cellphone plans usually require a credit check for approval. This is because mobile carriers want to mitigate the risk that you won’t be able to pay your phone bills on time.

Carriers want to see a good credit score. Therefore, if you’re in the process of improving your credit score, you might find it difficult to get approved by certain carriers. In this instance, going with a prepaid phone plan is an easy solution. Prepaid cellphone plans usually don’t require a credit check because you pay upfront for service, eliminating the risk that you won’t pay your phone bill.

4. Abundant Features

Prepaid phone plans used to have limitations, especially for data and calling. These limitations made them inferior to contract plans for several years, although today this trend has changed dramatically.

The amount of competition between prepaid mobile phone providers and improvements in cellular networks has put prepaid phone plans on par with contract plans. There are numerous carriers that offer unlimited talk, text, and data plans at competitive rates. Plus, network coverage and data speed has improved over the years.

Many prepaid phone providers actually piggyback off the cellular networks from the three major carriers, AT&T, T-Mobile, and Verizon. This enables nationwide access and data speeds that suffice for regular Internet usage and even streaming. Your prepaid plan might not be as fast as a top-tier plan from a major provider, but the savings are worth it.

5. No Overage Fees

An easy way to waste money with a contract plan is to go over your limits. Because you pay at the end of each month, overage fees are a real threat, and there are plenty of horror stories of people racking up $1,000 phone bills accidentally.

This mistake is easier to make than you might think. An accidental tap on the screen can turn off your phone’s Wi-Fi, making you rapidly drain your data. Similarly, if you don’t get the right roaming package, good luck the next time you travel internationally.

Prepaid phone plans eliminate the risk of overage fees. If you use your limits, your service stops until your next payment or until you buy additional usage. If you’ve been stung by overage fees in the past, prepaid phone plans are your best protective measure.


Disadvantages of Prepaid Cellphone Plans

Prepaid phone plans are affordable, flexible, and remarkably competitive with contract plans. However, there are several downsides to consider.

1. Family Plans Are Often Superior

Contract phone plans are more expensive than prepaid phone plans for individuals. However, major carriers sweeten the deal for families or with service bundling, which can make their price-per-phone more competitive.

For example, the same unlimited Verizon plan that costs $70 for an individual only costs $35 per phone for a family of four. Other carriers usually have similar family deals that significantly lower their monthly price. Although contract plans still lack flexibility, they certainly suit larger households from an affordability perspective.

If you haven’t cut the cord for cable, you can also consider bundling your phone and cable service with different contract providers to potentially save more money.

2. International Limitations

Because many prepaid phone plans use existing U.S. cellular networks to provide service, they aren’t always the best for traveling internationally. However, most major carriers let you buy a pay-as-you-go add-on for international roaming or upgrade your plan during a trip.

Prepaid phone providers like Mint Mobile have recently added roaming capabilities, so it’s becoming easier to save money on vacation as a prepaid user. However, don’t expect this feature for every prepaid cellphone plan.

If you frequently travel for work or are trying the digital nomad lifestyle, some international-friendly prepaid phone plans include:

  • Keepgo. Buy a prepaid travel Sim card and Wi-Fi hotspot plan that works in over 100 countries. Prepaid data Sim card plans are only $8 per 1GB of data you use.
  • Google Fi. Enjoy unlimited data and texting while abroad and calling for $0.20 per minute with the $70 per month unlimited plan. Alternatively, a flexible travel plan costs $20 per month and provides unlimited texting and $0.20 per minute calling. You can also buy data for $10 per gigabyte with the travel plan.

Again, your existing carrier might make it affordable to upgrade your plan for your next international trip. Check your options before making the switch to a prepaid phone plan if you have upcoming travel plans.

3. Upfront Hardware Cost

Contract plans work hardware price into their monthly cost. While this is one reason contract plans are more expensive than prepaid plans on average, the upfront cost of having to buy a phone separately is a drawback for prepaid plans if you’re living paycheck to paycheck.

If you want the latest smartphone model, you usually have to buy it upfront with a prepaid plan. Some prepaid providers offer financing, but this increases the long-term cost of your phone.

Many prepaid plans allow you to bring your own phone, provided it’s compatible with their monthly plans. Ultimately, this means the easiest way for many people to switch to a prepaid phone plan is to finish their existing contract and then bring their own device.

4. Speed Throttling

Most cellphone plans throttle data speed after a certain usage amount. For example, AT&T sometimes reduces data speed for different unlimited data plans when customers use more than 22GB or 50GB in one billing period. They also throttle speed if their network is too busy.

Because many prepaid cellphone plans use major cellular networks, their customers aren’t the priority for maintaining data speed. This means many prepaid plans offer 5G and 4G LTE data speeds but only for a certain amount of data before throttling kicks in.

For example, the popular prepaid cellphone provider Tello throttles 4G data to 2G speed on unlimited plans after you use 25GB. This is a common practice for prepaid plans, even for unlimited data users.

This isn’t a deal-breaker unless you require fast data speeds and considerable usage limits per month. However, potential speed reductions are worth keeping in mind if you switch to a prepaid phone plan.


The Best Prepaid Phone Plans

If you’re convinced that prepaid cellphone plans are for you, there are several affordable options worth researching:

  • Boost Mobile. The least expensive unlimited plan costs just $35 per month for unlimited talk, text, and data. You get 3GB of 4G LTE data; afterwards, speed reduces to 2G. You can opt for a $50-per-month plan to get 35GB of data at 4G LTE speed instead.
  • Cricket Wireless. Enjoy unlimited data, talk, and text within the U.S. for $50 per month when you set up auto pay. Cricket has cheaper prepaid phone plans that don’t include unlimited data. You can also add international calling to your plan if needed.
  • Mint Mobile. Get unlimited talk and text and 3GB of data per month for only $15 per month if you commit to three months. Afterwards, this plan renews at $25 per month. You get 5G and 4G LTE data speeds, nationwide coverage, and can add international data plans. Mint is undeniably one of the least expensive prepaid cellphone providers on the market.
  • Tello. Build your own plan or choose from existing options. Tello has budget prepaid phone plans starting as low as $5 per month without data. However, data plans are still affordable. For example, 2GB of data and unlimited talk and text is only $14 per month. Unlimited data is $39 per month.
  • Straight Talk. Get unlimited data, talk, and text for $34 per month when you set up auto pay. Unlimited data has 4G LTE speed for the first 5GB before dropping to 2G speed.

As mentioned, major carriers are also becoming more competitive with their prepaid phone plans. Their prices aren’t as low as companies like Tello or Mint Mobile, but family deals and potentially better coverage might make them superior depending on your cellphone needs.


Final Word

One of the simplest ways to become more frugal is to find ways to save money on the things you already buy. Cellphone plans aren’t an exception. Plus, because the annual cost of phone plans steadily increases each year, you can find some major savings by switching to the right prepaid phone plan.

Once you choose the right cellphone, take time to shop around for plans before jumping into a contract. Prepaid phone plans are becoming more competitive each year, and if you can find one that suits your needs, you’re looking at potentially hundreds of dollars in savings per year.

Source: moneycrashers.com

Debt Payoff Calculator

  • Get Out of Debt

Debt is an unfortunate fact of modern life. Credit is easy to come by and for the majority of Americans it’s an essential component of owning a home, a car, or paying for college. It’s a cycle you may never escape from, but with help from a debt payoff calculator you can get a clearer picture of how long your current debt will last.

Program your details into a debt payoff calculator to learn how long it will take you to clear your debts and keep reading to learn more about using this calculator and clearing your debts.

How Long Will It Take to Payoff my Debts?

A debt payoff calculator takes several key pieces of data, runs a quick calculation, and tells you how long a particular debt will take to clear. Different debts charge different rates and there are also fees and penalties, missed payments, delinquencies, and other outcomes to consider. Therefore, a debt payoff calculator should be used as a guide only and is not there to provide you with a watertight prediction.

The higher the minimum payment and the lower the interest rate, the quicker your debts will be repaid. Interest is a major defining factor here, even if your repayments are quite high. For example, a $10,000 credit card balance with a 24% annual percentage rate (APR) will generate close to $1,300 worth of interest and take 12 months to repay, even when the consumer is repaying $1000 every month.

That’s 10% of the balance, a minimum payment that is simply out of the question for the majority of consumers. If we drop that minimum payment to a more realistic $300, the debt will take more than 4 and a half years to clear and generate over $6,600 in interest. 

Why Does it Take so Long to Pay-off my Debts?

A large portion of your monthly repayment goes towards the interest, which essentially means you’re paying for the pleasure of having debt. If you have a credit card balance of $5,000 with a 20% APR and a $100 monthly repayment, then around $80 to $85 of that goes towards the interest. The rest chips away at the principal and when this clears then your debt has been repaid.

The more repayments you make, the more principal you will pay. Generally, the first few repayments pay more towards the interest than the principal, while the last few months do the reverse. Over the course of a loan you could be paying more interest than the entire value of the loan.

Can I Payoff my Debts Quicker?

Debt payoff calculators are based on your current monthly repayment, but if you increase this then you can greatly reduce the length of time it takes to repay your debts. As mentioned above, your minimum repayments, especially in the early months, are made of a majority of interest and a minority of principal.

Once that repayment has been made, then your interest for the month has been covered and any additional funds will go towards your principle. This is true for credit cards as well as mortgages and other types of personal loans. If you want to repay your debts sooner, simply increase the minimum repayment amount.

Not only will this eat away at the principal and reduce the number of repayments that you make over the lifetime of the loan, but it will also reduce compound interest, thus saving you significant amounts of money. 

APR and Debt Payoff

APR is very important, yet it’s something that many consumers overlook. Everyone who has ever shopped for credit cards knows that 15% is significantly better than 24% and will almost always opt for the former, but very few consumers will worry about 1 or 2 percentage points and won’t see much difference between a card with 24% APR and a card with 22% APR.

The promise of a few extra loyalty points is usually all it takes to sway them towards the higher figure.

However, over the long-term it can make a huge difference. If we return to an example used above, which was a debt of $10,000 with a monthly repayment of $300, then that seemingly insignificant 2% can reduce/increase your total repayment time by four months and your total interest repayments by over $1,000!

Always pay close attention to the APR when applying for credit cards and loans and always opt for the lowest APR you can get.

Things that Could Prolong Your Debts

All of the following can increase the time it takes to clear your debts, extending the figure given to you by our debt payoff calculator:

  • Missed payments
  • Additional debts
  • Fees and penalties
  • Debt management and repayment plans
  • Delinquencies and bankruptcies
  • A change in the terms and requirements

Can Debt Relief Help?

Debt relief companies are designed to make your debts more manageable and affordable, not to help you clear them quicker. Debt settlement, for instance, can help debtors who have delinquent debts to settle for a smaller sum. It’s an effective way to clear debts for less, but there is no guarantee that creditors will settle, and the process can take several years to complete.

Debt management involves the creation of installment plans, focusing on affordability and potentially prolonging the time that it takes to clear your debts.

There is one exception and that’s debt consolidation. A consolidation loan can clear all of your current debts and allow you to focus on repaying one smaller debt with a more manageable repayment structure and APR. It could save you money and it could also reduce the time it takes to clear your debts, while also limiting the risk of penalties, risks, and missed payments.

Average Length of a Debt in the US

More than 80% of Millennials are in debt and if current statistics are anything to go by, three-quarters of them will die with debt. That’s a pretty scary statistic, especially when you consider that things don’t look much better for Baby Boomers and other older generations.

For many, therefore, debt lasts a lifetime. But that includes mortgages and equity loans, and well as unpaid credit card balances, so it’s not all doom and gloom. 

Student loans are some of the most damaging and take an average of 20 years to clear. The average credit card is repaid in a little over a year, however, while auto loans last 69 months on average.

Source: pocketyourdollars.com

Pros and Cons of Debt Consolidation

Considering Debt ConsolidationBetween student loans, credit cards, and more, many Americans have managed to rack up thousands of dollars of debt. Regardless of how the debt has accrued, it must be paid, which is why many people who find themselves struggling to repay these debts turn to debt consolidation.

Debt consolidation can help people rid themselves of debt, but consumers who are considering this debt relief option should be sure they understand the pros and cons before taking this route.

Pros of debt consolidation

The pros of debt consolidation include:

  • One monthly payment: Debt consolidation reduces the number of monthly payments to one, making it easier for people to manage their debt.
  • Debts are repaid sooner: Debt consolidation allows consumers to pay off their debt using a loan, so as soon as they receive the loan funds, they can pay back their debts.
  • Low-interest rate: When compared to an interest rate on a credit card, the interest rate of a debt consolidation loan will likely make a debt a bit more affordable and save people money.
  • Improve credit: Since consumers will have one affordable monthly payment to make, they will have a positive payment history reported to the credit bureaus, which will ultimately lead to a score increase.

Cons of debt consolidation

The cons of debt consolidation include:

  • Fees: Many lenders will require borrowers to pay fees, such as application, origination, and late fees.
  • Increase debt: If someone fails to pay off their debt with the debt consolidation loan, or continue to accrue debt on their open accounts, such as credit cards, they are simply adding to their debt rather than reducing it.
  • Risk of losing assets: The debt consolidation loan may be a secured loan, which will require collateral. If the debt consolidation loan is not repaid, the borrower could their collateral.

What should be considered when applying for a debt consolidation loan?

When applying for a debt consolidation loan, there is a lot to consider. The goal is to get out of debt, so it is important for consumers to be realistic about whether or not a loan is a solution to their problem.

  • Amount of debt
  • Loan amount
  • Fees
  • Interest rate
  • Repayment schedule
  • Monthly payment amount
  • Collateral

Once the above has been considered, consumers will want to make sure they can actually afford what they may be asked to pay their potential lenders every month. If affordability is an issue, debt consolidation may not be the best option because instead of relieving the person’s debt, it will only add to it.

Alternatives to debt consolidation

The goal of debt consolidation is to reduce debt. Although consumers may find debt consolidation appealing, it is not the only option consumers have when they want to lower their debt and become debt-free.

  • Snowball method: Make small payments to clear away their smallest debts one at a time. Any additional funds can be used towards the balance due to get it paid down faster.
  • Budget: Prioritize and eliminate expenses to free up extra cash that can be used to pay down balances.
  • Bankruptcy: File bankruptcy to eliminate debt or repay the debt according to a specific plan.

With debt having a negative impact on a person’s life, it is easy to understand why people will try anything to get relief. Luckily, there are a number of ways for people to relieve their debt, and exploring these options will help them make an informed decision that will improve their financial situation. Depending on their circumstances, debt consolidation could be the perfect help them reach their goal of being debt-free.

Source: creditabsolute.com

Boise, ID Real Estate Market 2020 Recap & 2021 Forecast

2020 brought us one of the wildest real estate markets in memory. When COVID-19 began to take a foothold in early spring, the real estate market came to a screeching halt…for about two weeks. As the pandemic moved through spring and summer, the Boise market grew red hot once again.

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Here are some of the most notable takeaways of the Boise area real estate market in 2020.

A Major Sellers’ Market

Throughout the year, sellers in the Treasure Valley were seeing multiple offers, home bids well over asking price, rapid appreciation, and buyers waiving home inspections and appraisals. It was a good year to be a homeowner or a home seller. Homebuyers, on the other hand, had to learn to navigate an increasingly competitive market.

Record Low Inventory

2020 began with a shortage of homes listed on the market. Listings were hovering around 2-3 months of inventory at the start of the year. Other than the short-lived halt in the market due to COVID-19, the trend of low inventory only increased throughout the year. In late spring, inventory fell to record lows, with only a one-month supply. In total, active listings in both Ada and Canyon counties fell 79% in 2020.

Rising Home Values

Dropping inventory levels often lead to rising home values, and this principle held true in the Boise area this year. For context, the year-over-year increase in values for Ada County homes between 2018 and 2019 was only 9.9%. The 2019 to 2020 growth was immense.

In addition to record-low inventory, record-low interest rates also drove the increase in home values. Buyers were jumping to buy new homes, even while fewer and fewer homes became available.

Migration to Idaho

During the 2020 and the COVID-19 pandemic, the entire country saw a trend of urbanites moving out of major cities and into areas with more space and fewer people. This trend accelerated the already expanding Boise market and our surrounding vacation markets, such as McCall and Sun Valley.

The cost of driving a Uhaul from San Francisco to Boise was 10-30 times more expensive than moving the exact same Uhauls from Boise to San Francisco. Uhaul parking lots are literally bursting at the seams with idle trucks from people having moved to Boise or the surrounding areas. Idaho is now the fastest-growing state in the country.

Expectations for 2021

As we enter 2021, the story of the Treasure Valley remains the same. Huge numbers of people are moving to Boise and the surrounding areas. There is an extreme shortage of homes for sale and for rent. Prices of homes for rent and sale continue to escalate.

On the bright side for prospective buyers, interest rates are near their all-time lows, and this fact has helped keep affordability in check despite the massive growth in appreciation. If interest rates are to reverse course then affordability could become a major impediment to home buyers.

With possible increases in income taxes and capital gains, we could see new headwinds on luxury real estate which has had a good run. Investors are more likely to participate in a 1031 exchange to defer rising capital gains rates. In short, 2021 is starting off as 2020 ended. It’s a great time to be a homeowner. This is good news for sellers and buyers alike.

Talk to A Homie in 2021

If you’re looking to take advantage of the current sellers’ market, click here to get in touch with us and start listing your home. Our Homie team will help you get an awesome price for your home while making the transaction run smoothly and quickly.

If you’re looking to buy a home in the Boise area this upcoming year, our expert agents will make navigating this competitive market a breeze. Click here to start buying.

Source: homie.com

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Good Financial Cents, and author of the personal finance book Soldier of Finance. Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.