Buying New Phones: Trade Up Or Purchase Outright?

So much is being made of these new “upgrade” programs that carriers are now offering. Even though they may look great on the surface, chances are, they are only going to pad the carrier’s pocketbooks with more cash. In fact, when carrier’s revenue streams begin to dry up, they will repackage a pick with some lipstick on it just to convince you that it’s a better pig.

When you go in to a store to pick out a handset, you will see 2 or 3 prices on the tag. The first is the cost of the device with a 2 year contract. These usually range from “Free” to $300 depending on the phone. Then you have the outright retail of the device. These prices are how much the phone costs without a contract. Keep in mind, a carrier is still not obligated to unlock a device for use with other networks if it is purchased outright. They own the service that device is designed to run on, so unlocking it for someone else to make money off is not something they will always do. The third and less common pricing is the “one year upgrade” price. This one is all but gone, but you might see it hiding in stores here or there.

Today though, we see an entirely new structure in pricing. It’s the 6 month to 12 month trade in pricing. Carriers abandoned their 12 month upgrade programs a few years ago. This lead to a slow down in consumer churn, handset sales and even plan upgrades. It lead to a decrease in the cost of business (giving away $500 phones isn’t good for business, but the $1000 worth of data that device used sure made up for it quickly), but it drove customers to competitors that offered the newest handsets first. This desperate game of handset trade-ins is the next step in trying to revive that market, but make even more money from it.

How it works is simple (we will use T-Mobile’s plan for example here): You buy a phone for $200. You pay for your plan $60 ($50 plus taxes), plus $20 a month for your handset payment and $10 for your insurance and upgrade credit. At the end of 6 months, you get to trade in that handset on a new one for another $200 and start the process all over. In other words, you are paying $350 to use that phone for 6 months. You don’t own anything, you don’t keep anything and they are going to resell your phone as a refurbished device to someone for another $400 next week.

This may sound crazy, but why not save up the extra cash (get a nice low-end device like the Lumia 521, a BLU Mobile Android device or a even gently used iPhone 4 and use that instead for 6 months on a plan from Spot Mobile or Simple Mobile? The Lumia runs somewhere between $100-150 new and the Spot Mobile or Simple Mobile plan will set you back $40 a month. This puts your 6 month cost at $350 – including your service. Compare this to T-Mobile’s total 6 month cost of $720.

You can quickly use that $370 in savings to upgrade your device to a newer iPhone, stronger Android device. Something like the Nexus 4 running in the $300-350 range would be a perfect fit for that Spot Mobile or Simple Mobile plan. This would mean after 6 months, you have your first used phone – the Lumia, BLU or that iPhone 4 – and you now own a new phone as well. You can always sell that first one, but why not save it incase tragedy strikes and you need a backup. Now that you own your new Nexus 4 or BLU Life Play and are saving $50 a month on your bill, you can repeat this cycle in a year and spend $600 on that new phone and sell the old one for $200 in cash. It’s a much better way of doing things, and you make the profits instead of the carrier.

If insurance on the handset is a concern, make sure you check out our articles on SquareTrade and ProtectYourBubble. Both offer great coverage for under $10 a month. That brings your total bill with a Spot Mobile or Simple Mobile plan to nearly the same cost as the base T-Mobile plan, before taxes. Set that phone free and purchase them outright. The first few months of using a lower end device will make using that higher end device in 6=12 months that much better. And remember lower cost, unlocked handsets from online stores make easing in to systems like this much nicer.


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