Do the math before upgrading cellphone
Smart consumers know that when a sales pitch involves convoluted math, chances are it's not a good deal. That alone is a warning sign against the early-upgrade plans being sold by the four major mobile-phone carriers.
But not so fast. Though many reviews are lukewarm on the value of early-upgrade plans for people who prefer the latest smartphones, the plans can be a good deal for customers who hold on to their phones a long time, experts say.
Early-upgrade-plan enrollment nationwide more than quadrupled from September through March, according to the market-research firm NPD.
A year ago, T-Mobile, Verizon, AT&T, and Sprint began rolling out early upgrades aimed at gadget lovers who wanted to get their hands on the newest phones earlier - annually, or even sooner.
Under traditional plans, customers had to wait about two years before they were eligible for new phones at discounted prices. And that's where the convoluted math has always started - with how most U.S. carriers charge their customers. Instead of charging for phone and service separately, they bake into service plans part of the phone's price.
Savvy consumers recognize it's generally a bad idea to buy and hold a phone for more than two years if you're on a traditional plan. You might as well upgrade when you're eligible. Why pay a monthly service rate that includes a subsidy for a phone paid off long ago?
But early-upgrade plans change that, essentially separating the cost of the phone - allowing you to pay it off in installments over time, interest free - while reducing your monthly service-plan price because you didn't pay an artificially low price for the phone.
So ignore the names of the "upgrade" plans, but don't ignore the plans, said Michael Gikas, a smartphone expert with Consumer Reports.
"The early-upgrade plans are a great way to save money if you don't upgrade. That's the bottom line," Gikas said. "Do exactly what they don't want you to do, and you'll save."
Logan Abbott, president of the wireless-phone comparison site Wirefly, sees it the same way. "If [you're] keeping the phone and like the phone and don't need to upgrade all the time, that's when it makes the most sense," he said.
That's especially true for customers on no-contract plans such as the AT&T Mobile Share Value plan.
"If you're going with a no-contract plan, I would definitely do it," Abbott said. "The reason people didn't use no-contract plans is they had to buy the phone up front for, like, $700. The early-upgrade plan has kind of eliminated that."
Other points to ponder:
Smartphones today have great screens, fast processors, good reception, and decent cameras and battery life. They will satisfy most people for about three years, Gikas said. "Do you think anyone sweats buying a Blu-ray player anymore? They're all pretty good."
Most early-upgrade plans require you to pay the full retail price of the phone, but break it into monthly installments, amounting to zero percent interest on the full price of a phone. Like layaway, but you get the merchandise right away.
When you're done paying off the phone, your bill decreases by the amount of the monthly phone installment. But you continue to pay less per month than if you were on a traditional two-year contract.