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Everything you need to know about Verizon’s new no contract plans

Verizon Wireless recently ditched two-year contracts in favor of a full retail pricing model. The Verizon Plan is simpler than ever, but it’s likely to be even more confusing than it needs to be, because the carrier has clarified that it will continue to offer two-year contracts to existing customers.

This means that you can still get that shiny new iPhone for $200, but that doesn’t mean that you should continue to do the same thing that you have done in the past. Paying upwards of $600 for a brand new phone can be scary, but the truth of the matter is that most customers will actually save money in the long run by opting for the Verizon Plan and paying the full retail price for a new smartphone. Even so, customers in certain situations will be better off sticking with two-year contracts.

This guide will break down how the Verizon Plan works, what your options are, and how it will affect you.

Related: Sprint vs. AT&T vs. Verizon vs. T-Mobile: Who has the best family plan?

How the old plans used to work

We thought we would get started by explaining how things were prior to the new plan, in an effort to better understand how things will be moving forward.

Let’s start with traditional contracts, or what Verizon refers to as the More Everything plans. Verizon discounts smartphone prices in exchange for your commitment to remain on the network for two years. For example, with a two-year contract, a phone with a full retail price of $600 will only cost you $200.

This $400 “discount” is what we call the subsidy. Discount is in quotes because it’s really not a discount. Verizon would still get that $400 from you as part of your monthly service payment over the two-year contract period. In other words, you pay more for your service to pay back this subsidy. The problem with the two-year contract method is that your monthly payment stays the same once your two-year contract is fulfilled. The longer you hold onto your phone, the more money you waste.

Based on this information, it’s clear why Verizon isn’t completely ditching two-year contracts. It’s a money maker, as we will point out below.

Related: T-Mobile’s ‘Mobile without Borders’ ends roaming fees within North American continent

Verizon started offering Edge Plans a couple of years ago, which were very similar to a full retail cost model. Customers who went with this plan would pay full retail for their phone, and get a discount off of the monthly access fee, since Verizon wasn’t covering the cost of the subsidy. The price of the phone would get broken down into monthly payments without interest, which would get added to the monthly cost of service. Once the phone was paid off, only the discounted monthly service portion would remain.

Customers were able to upgrade to a new phone once 75 percent of the phone was paid off by trading in their old phone. However, Verizon made an adjustment to this plan in May 2015. Trade-ins were eliminated, and customers were required to pay off their current phone in full before they could upgrade.

This brings us to new Verizon Plan. It’s actually a lot like how the Edge program was after May 2015.

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