How to Calculate the Real Cost of Upgrading Your Mobile Phone

by Travis Pizel · 14 comments

We’re witnessing all out war between major cell phone carriers. They’re in a constant battle to outdo each other with better coverage, faster speeds, cheaper rates, and even offering incentives to customers to switch to their service.

It’s not only a fight between major carriers, but smaller ones too. The big players also have to contend with smaller providers who use the buzz term, “no contract” to entice customers to switch.

Now everyone is offering no-contract service, but is it really much different than the traditional 2-year deal?

Let’s look at the details and find out.

Our family uses AT&T as a provider, and switched from a traditional plan with a 2-year contract to their no-contract service earlier this year. We previously paid for a data plan plus $40 for each of our four lines. When we made the switch, that per line fee dropped to $15 each saving us a total of $100 a month.

We thought we had found the mystical unicorn of saving money, until my wife decided she wanted to upgrade her phone.

With the iPhone 6 newly released, you’re likely on the hunt to upgrade your mobile phone and plan, too. These are the two most popular options available:

Traditional 2-year Contract

  • Get a new phone at the discounted price of $400, when signing a new contract.
  • This will increase your per-month phone line fee from $15 to $40 for the duration of the contract.

Total cost to upgrade with AT&T: $400 + $600 ($25 increase in line fee x 24 months) = $1,000 extra paid out over the length of the entire contract.

That is absolutely outrageous! So unless you want to stick with your old phone, and data plan, you may want to consider other options.

AT&T Next Plan

  • Nothing to pay down on the phone right now.
  • Line fee stays the same, but you’ll have a $36 payment per month in additional to the regular bill.

Total phone price: $36 x 24 months = $864 extra paid over the next 2 years. Not much better than the option above, but it’s still somewhat good savings.

Always Compare Plans and Prices

The marketing of the AT&T next plan did leave me with a bad impression. It’s touted as a no-contract plan, however, you make monthly installment payments on your phone until it’s paid off. Which coincidentally is two years, and sounds like a contract to me.

They boast that you can drop AT&T as a carrier at any time, but you’d have to pay the entire balance owed on your phone. Which sounds quite a bit like a cancellation fee.

However, that being said, the overall price paid for the phone is $136 cheaper by making the installment payments through the AT&T Next Plan.

This is a look at just one type of cell phone with one carrier, but it lays the blueprint for how you would go about calculating the best path when you’re in the market for a phone upgrade.

With carriers offering multiple plan options, things get confusing quickly. But, it’s important to take the time to calculate the true cost of all your options.

Have you upgraded your phone recently? Did you calculate which plan would be the least expensive overall? What are your findings?

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{ read the comments below or add one }

  • Amos says:

    Can you tell me how an upgrade with various providers is calculated – I think it based on usage but cant find any details anywhere.

  • dojo says:

    I am SOOOO cheap when it comes to my phone. While I always spend a small fortune on my laptops (well, am a web designer, they’re actually helping me earn a living), I never cared about smartphones. Just changed my 5 year old phone with a cheap white LG. That’s all I cared about. Wouldn’t have made the switch, but I changed carriers and the old phone wasn’t accepted in their ‘network’ 😀

  • Kerri says:

    I love this! We don’t focus on mobile phones YET, but at Cinch, we try to help people start with their biggest bills (like credit cards and auto insurance and mortgage) and find savings there quickly and easily. It should be easy, right?!

    Kerri
    Cinch Financial

  • Carrie says:

    There’s 3rd option worth considering.
    It’s best to own your phone out-right (buy a used one on craigslist! If you care about saving money on your cell phone bill, then you would probably be OK with buying a used phone…).
    That way you don’t owe the $15-40 monthly charge on the ‘2 year contract price’

    Take the time. Do the math for all 3 options.
    I saved an additional $250 over the course of 2 years by buying a used phone.

  • I upgraded my phone after I dropped my last one. Thankfully I didn’t drop an iPhone, so it wasn’t too much to get the new one. We have a tab with our current provider where a portion of our monthly bill goes to pay off our phone.

    I rarely use my phone, so I’m getting rid of data and switching to pay as go. I’ll be keeping the same smart phone, so it will be a primarily WIFI type device.

    • That would be quite a budget buster if you shelled out for a new iPhone. The interesting thing is that there are droid phones out there that are really inexpensive – they may not have the greatest resolution, the fastest processor, the most memory….but they do everything you would want it to do. I tried one out as a blogging opportunity – the phone cost $40, and really surprised me with it’s functions!

  • Scott says:

    New smartphones are not free and never have been. If a new iPhone 6 costs $849 then you have to pay at least $849 for it. You can pay it all up front and pay less each month, or you can spread it out over 24 monthly payments. But you still have to pay the $849 cost of the phone.

    • You’re right, they’ve never been free. In fact, Scott, that “discounted price” they advertise is also a complete sham. Customers have always been paying the full price of their phone – they just never realized that they were just paying for it through their contract. The people that really got hosed were the people (like me) that paid for the two year contract, and then took the “free” phone. I probably “paid” double for it. The interesting thing about my analysis above though, is that the two options result in a different price for the phone….

      • smith says:

        So you get a $400 phone for free or a $700 phone for $200, yes the cell phone company is going to want to recoup that expensand, shocker of shockers, turn a profit.

        They’re not a charity, just there to hand out iPhones like so many canapes and finger sandwiches.

        • Nobody said they were a charity, smith. The point is that many people see the heavy discount given with a contract, and sign on the dotted line not understanding that they’re paying for the phone anyway – it’s not any better of a deal.

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