Prepaid Cell Phones Guide: Pay As You Go Cellular Phone Plans Explained

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How Prepaid Cell Phones Work

As the name would suggest, prepaid carriers force you to pay up front for your cell phone usage, rather than having the actual amount of airtime tabulated by the cell phone service provider and billed the month after you actually burn up all the minutes. However, this type of billing can take two forms: Pay as you go, and unlimited prepaid monthly.

Pay-as-you-go plans quite literally require you to pay for every minute you use. Typically, you can buy them in chunks of several hundred minutes at a time, with prices ranging between 6 cents and 30 cents per minute. When you run out, your phone stops working, preventing the sort of overages you might end up with on a typical carrier after exceeding your monthly allotment.

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Prepaid monthly plans, by contrast, take a buffet approach to minutes: Pay for a month up front and you can use the phone as much as you like for that time period. “From the customer’s point of view, that’s what makes the most sense, says Kirk Parsons, senior director of wireless services at J.D. Power and Associates. “It takes the confusion away from ‘How much is it really going to cost me, and what am I getting for that?’”

The main economic difference between one of the these unlimited plans and the type you might get from a mainstream network operator is that it comes without a contract, and you’ll have to pay before your month’s worth of calling, not at the end.

Although the lack of overage charges and other accidental fees helps distinguish prepaid carriers from contract carriers, that doesn’t mean there aren’t money pits. “There are some hidden fees along with the non-contracts that you have to be aware of,” says Parsons. Many pay-as-you-go plans, for instance, charge a daily access fee, whether you use your minutes or not. And those “unlimited everything” plans don’t always mean everything: For example, you might find yourself paying extra for roaming or data usage, depending on the carrier.

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