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Prepaid cell plans may be your best bet

Is your cell phone bill a budget buster? Maybe you should switch to a prepaid plan. The savings can be dramatic with pay-as-you-go wireless service.

Is your cell phone bill a budget buster?  Maybe you should switch to a prepaid plan. The savings can be dramatic with pay-as-you-go wireless service.

Jennifer Allison works as a security guard at the Verizon store in downtown Seattle, so she knows all the plans and prices. When she needed to save money, Allison went prepaid.

“And now that I have it, I love it,” she says. Because she only pays for what she uses, Allison feels she has control of her phone bill.

"I can get by on $15 a month for cell phone costs if I need to or nothing for a couple of weeks if I'm really broke. And if I’m flush and want to talk a lot, then I can put as much money as I want into it.”

“Prepaid is coming of age,” says Neil Lindsay, vice president of marketing for Boost Mobile, a wholly-owned subsidiary of Sprint that only sells prepaid service. It no longer has a negative connotation of being just for those who are credit-challenged. “Now it’s more of a choice, rather than something someone needs because they can’t get a contract,” Lindsay tells me.

Wireless companies are responding to the increased demand with more prepaid plans and more sophisticated prepaid phones. “It used to be one-size-fits-all,” says Scott Charleston with Verizon Wireless. “Not any more.”

Prepaid is big over there
In Europe prepaid is already common. It accounts for about a third of the market in France, 66 percent in the United Kingdom and 90 percent in Italy. In the U.S. it’s still a small but expanding part of the wireless business. About 29 million Americans (16 percent of all cell phone users) are on a prepaid plan, but many more could probably save money by going that route.

According to a recent survey from the New Millennium Research Council, a Washington, D.C. think tank, about 25 million cell customers “appear to be good candidates” for this less expensive service because they currently pay for airtime they don’t use. The survey found that more than half of all cell phone customers on a contract don’t use all of their minutes each month.

And prepaid is not just for infrequent users. In its January issue, Consumer Reports did the math and found that bigger talkers can also score sizable savings.

“It’s turning out that the most economical plans are the prepaid ones,” says Mike Gikas, a senior editor at the magazine. “By going prepaid you only pay for what you use.”

The editors say a family with two cell phones that talks about 700 minutes a month could save $100 to $220 a year if they dropped their “family plan” with a one of the major wireless companies and used Virgin Mobile’s prepaid phone service.

Boost Mobile recently introduced an unlimited prepaid calling plan for $50. If you want to limit your bill but have an endless bucket of minutes, this is the plan to choose. You get unlimited nationwide talk and text, web access and walkie-talkie service. Boost uses the Nextel network.

With prepaid service there’s no contract – and therefore no early termination fee – which is reason enough for some people to go this route. But there are other benefits. Because you pay in advance for this service, there’s no credit check and no surprise charges at the end of the month. When you use up all your minutes, the phone stops working until you recharge it. Of course, you get warning messages before that happens.

Prepaid is also more flexible. You can pay by the day, by the call or by the month. And it’s easy to switch from one payment to another.

“This is a perfect way to control how much you or the kids spend on your cell phones,” says Sam Simon, chairman of the Telecommunications Research and Action Center.

So why don’t more people use prepaid wireless? It could be the mistaken belief that you’ll lose your existing phone number. You won’t. You can switch to prepaid and keep you cell phone number, just as you can keep your number when you change from one wireless company to another.

The devil’s in the details    
“Some of the most dangerous prepaid plans are with the big carriers,” Simon warns. These are the ones that have a usage fee on top of the per-minute charge. Some of these plans only charge a fee on the days you send/receive a call or text message. Other plans charge a use fee every day.

Let’s say you have Verizon’s “Prepaid Unlimited Talk” plan. There’s no limit to the number of calls you can make or receive. But every day the phone is used you pay a $3.99 access charge. If you wanted to use the phone 25 days a month you’re daily charges would add up to $100. In this case, you’d probably be much better off with a contract plan.

Your best bet is to pick a plan that does not charge a daily fee. Sam Simon likes the prepaid phones from TracFone, Virgin Mobile and Net 10. They’re available at discount stores such as Target and Wal-Mart. “With these phones you get what you see,” Simon says. “There are no hidden fees or daily charges.”

The bottom line
Prepaid service isn’t for everyone. But for a lot of people it’s the smart way to go. For as little as $9.99 you can get a brand name flip phone with color display, pre-loaded ring tones, caller ID, voicemail and call waiting. Add $10 for a phone that can surf the web. For just $39.99 you can buy a prepaid camera phone loaded with Bluetooth wireless, real music ring tones, IM, email and picture messaging.

Here’s a money-saving tip: If you already have a phone with one of the major wireless companies, you may be able to have it converted to pay-as-you-go and save the cost of buying a new handset. Verizon says a significant percentage of its customers do this.

Just remember, unlike normal cell phone service, with a prepaid plan, once you use up what you paid for, your phone won’t work until you pay some more. That’s an easy process, but it could be a pain if you’re in the middle of call.

If prepaid makes sense to you, take your time and shop around. Plans vary greatly from company to company. Read the fine print on the brochures. Find out if the minutes expire. Ask about additional charges, such as access fees and taxes. The good thing is there no contract. It you make a mistake and choose the wrong company or the wrong plan, you can change without penalty.