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Do You Understand How Your Phone Upgrade Works?

Updates. Upgrades. The latest and greatest. Who doesn’t want those things? Most people do—even if they don’t need them. And cell phone service providers, also called “carriers,” know this. So, to answer this desire, they design service contracts that include built-in biennial (once every other year) phone “upgrades.”

Traditionally, every other year, you would return to your carrier to exchange your older model phone for a new one—the latest version with all the bells and whistles—and sign a new service contract. You would leave the store feeling pretty darn good: you had a new phone, and in two years you could look forward to getting an even newer one.

But is that really a good deal for you? It certainly might feel like it because you get an updated phone with a very small up-front cost. However, like most things in life, the true cost of this transaction isn’t all up front.

How you really pay for that upgraded phone

When you upgrade your phone with a new service plan, you’re usually signing up for a “device installment plan” that has you paying (a very small) part of the new phone cost right away and the rest over 12, 18, 24, or 30 months, depending on the contract length. The installment payments you make each month can run up to $50 or more.

At the end of the contract, if your phone is still in good condition, you can trade it in for a newer model and another device installment plan, or you can buy it from the carrier and keep it. With most plans, you will have paid off 80% of the phone’s cost at the end of the contract.

Ultimately, all of this means that at no point did you truly own the phone. For a fee each month, the service provider was loaning it to you.

When the phone is paid off

When and if you decide to pay off your latest phone, you are in a good place to make some smart financial decisions regarding your cell phone plan and costs. If the phone still works and does all that you need it to do, you might want to have your phone unlocked. This means you are no longer tied to your old carrier and can do some cell phone plan shopping, taking the phone with you and only paying for plan services on your next contact. The longer you use a paid-off phone, the more money you save.

Another option is to sell the phone, keep the money, and put it toward paying outright for a new phone. It will be a chunk of change—the highest-end smart phones often run more than $1,000 these days—but you can buy it unlocked, shop for a plan that fits your budget, and be able to sell the phone at any point.

Is an upgrade worth it to you?

This is all not to say that an upgrade is never worth it. Perhaps paying $20–50/month for a newer phone is worth the features your old phone is missing.

If you’re having a hard time deciding if an upgrade is worth it for you, ask yourself these questions—if you answer yes more often than no, consider sticking with your current phone and saving the cash you would have spent on an upgrade. If you answer no more often, then an upgrade could be the right move for you.

  • Can you perform your usual tasks on the phone without it freezing up?
  • Is it free of hardware damage that might affect its performance?
  • Are you happy with the quality of the pictures you can take?
  • Can it still support the most recent version of its compatible operating system?
  • Can you use it often without having to charge it?
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