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Consider prepaid cell phones to save money

On a per-minute basis, you might find a cheaper option.

By MSN Money producer Nov 10, 2009 1:59PM

This post comes from our partner blog Bargaineering.

When you think of prepaid cell phones, what do you think of? If you’ve watched "The Wire" on HBO, a gritty drama about life in Baltimore, you associate them with drug dealers. If you were a fan of "The Sopranos," you knew they were good for avoiding wiretaps. If you haven't seen either, chances are you don’t associate them with anything.

Most people don't use prepaid cell phones because we naturally think to a nice buffet-type minute plan with a major carrier.

For our vacation to Europe, we used a pay as you go phone. We couldn't use our own phones since we didn’t have compatible technology but our friend lent us her old phone. We went to a local Orange store (a pay-as-you-go service company), bought a SIM card and loaded it up with some minutes.

The cost of the chip? Zero.

We put five euros on the phone, and we now had cell service without a commitment, without any huge up-front payments, and we only pay for the minutes we needed.

Topping up

"Topping up" is the term used whenever you add minutes to your phone. There are a variety of ways you can top up. The easiest was to link a credit card to the SIM card, which would top it up in pre-defined increments. If you didn't want to link a card, you can top up by going to an ATM or to a grocery store. You pay for the minutes, the register prints a voucher, you text the code to the phone company and your minutes are added in just a few seconds.

A lot of people in Europe use pay-as-you-go cell phones and there may be something to it, too. Americans pay more than anyone else for cell phone service. We pay on average more than $600 a year, while some people in other countries pay less than $140 a year!

Consider prepaid cell phones

Take a look at your cell phone bill and review how many minutes you used last month, assuming it was a typical month. Be sure to add every minute, from the anytime minutes to the night and weekend minutes (whatever your provider calls them). Then just divide your monthly cost by the number of minutes and you have your per-minute cost.

I have a phenomenal plan from Sprint, the SERO plan from years ago, where I pay $35 a month for 500 minutes and unlimited data and text messages. Last month, I used 674 total minutes at a cost of about 5.1 cents a minute.

How does that compare to a prepaid phone? I'm going to use T-Mobile's program as the benchmark, only because the rates were the easiest to find. With T-Mobile, you can pay $1 a day on the days you use the phone or ten cents a minute. For me, that plan doesn't make sense because I pay less than 10 cents a minute plus I get the benefit of unlimited text and data.

Another fixed cost to consider is the cost of the phone itself. Usually prepaid cell phones don't offer a lot of the bells and whistles of other phones, so what you’ll be getting is a bare-bones phone for somewhere in the neighborhood of $25 to $50. It's a fixed cost that you probably wouldn’t have with a fixed plan so be sure to include it in your comparison.

One other thought to consider: You probably will use your phone less if you’re paying per minute. I think it's a great way to save money if it makes sense for you and if you're not already in a contract.

If you use a prepaid phone, we'd love to hear your opinion of it in terms of call quality, savings and convenience..

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