Why you should buy a new smartphone every two years

Samsung Galaxy S III on Verizon
The reason a $600 Samsung Galaxy S III will cost you just $200 is that the rest of the cost is baked into your monthly rates.

Will you get a new phone when your wireless contract ends? If not, you might want to reconsider. Consumer Reports says it’s worth spending $100 to $200 on a new phone if you can afford it and you don’t plan to switch carriers anytime soon.

It’s not simply because that old model will start showing its age, it’s a matter of economics. 

When you bought that cellphone, as part of your 2-year service agreement, your wireless company subsidized about half — or more than half — the cost. A $400 phone will likely cost you just $200 or less up front.

You pay the rest of the expense back to the carrier in two years’ worth of monthly bills. 

That’s why carriers have smartphone early termination fees of $300 or more, a charge that reduces every month you have your device: They don’t want you walking away with a phone you haven’t finished paying off.

But here’s the catch: Your monthly bill doesn’t go down after your service contract ends and you’ve paid back the cost of that old phone.

“After the contract is up, you’re essentially paying for a new phone whether you get one or not,” noted Mike Gikas, senior electronics editor at Consumer Reports. “So why not get something for your money?”

Another reason to upgrade when eligible: Cellphone technology is constantly improving, both the hardware and software. Downloading over-the-air updates can only prolong the inevitable obsolescence for so long.

“Operating systems and the applications that run on them are being updated constantly and the hardware on your phone may not be able to keep up,” Gikas explained.

For those who can’t wait for their contract to end, prepare to pay through the nose to have the latest-and-greatest smartphone. 

Consumer Reports went looking for the highly rated Samsung Galaxy S III and found a huge price difference for an early upgrade at all four major carriers. For example, Verizon charges $200 for the 16GB Galaxy S III with a new 2-year agreement. Customers who upgrade halfway through their contract pay $600.

With the iPhone, it can be even steeper: The cost of a 16GB iPhone 5 under 2-year contract is also $200, but the out-of-contract price tag is $650.

HTC One X $99
HTC One X is selling for $99 at AT&T — but you have to agree to the 2-year contract.

Grab a deal now
And if you do qualify for a new phone, now would be a good time to get it. 

“The December holiday season is one of the best — if not the best — time to purchase a new smartphone,” said Louis Ramirez, senior features writer at “Prices aren't expected to go up after the holidays, but the promotions are expected to be less frequent after Christmas.”

Consumer Reports says you can get some “top-notch” phones, such as the HTC One X from AT&T and the Motorola Droid Razr M from Verizon, for just $100 with a 24-month contract.

Wireless carriers and third-party resellers are offering some great deals. For example, with a quick search, I found a new Nokia Lumia 822 Windows Phone 8 smartphone for free with a new contract. Some retailers have been running gift cards promotions. Buy a phone and you get a gift card that’s worth more than the cost of that phone. 

“If you're looking to make a smartphone purchase, we recommend jumping on the first bundle deal (gift card + smartphone) you see between now and Christmas,” Ramirez told me.

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.