The phone companies call them installment plans, but I think of them as phone rental. Before you pay off the cost of the phone, you're entitled to hand it back in to get a new one - every six months with Verizon Wireless or T-Mobile or every year with AT&T.
It's a good deal for some people on T-Mobile. Unlike the rival plans, T-Mobile's Jump comes with insurance to cover loss and damage. And it doesn't add that much to the cost of the phone. With Verizon's Edge and AT&T's Next, you're essentially paying for the same phone twice.
First, a quick explanation of how phone bills work.
When you buy an iPhone 5, you might pay $200 for it, but it actually costs $650. Your phone company covers the difference and makes it up over the life of the two-year service contract. On the phone bill, it just appears as a service fee for voice, text and data. But that fee actually includes an amount that helps the phone companies cover the difference. The service fee doesn't go down, however, even after you've covered the difference, or paid the phone off.
With AT&T's and Verizon's installment plans, you're paying the full $650 for the iPhone, spread out over 20 or 24 months. But once again, the service fee doesn't go down, even though there's no "difference" the phone companies need to make up. So you're paying for the phone through the installment payments, plus what's baked into the service fee.
Earlier this year, T-Mobile broke the service fee into two fees - one for the actual service, and one for the phone. So once you've paid off the phone, your total bill goes down. And if you sign up for Jump, you're paying a $10 monthly fee for that, mostly for the insurance, but you're not paying for the phone twice.
Even though you're paying more for the phone with Verizon's and AT&T's plans, it might still be worthwhile if you're already planning to upgrade more frequently than every other year. Both take the hassle out of trying to sell your old device.
Here's a closer look at the three plans to see if they are right for you. I'm using prices for Samsung's Galaxy S4 in the calculations, so actual costs may vary. Keep in mind all three plans are optional, so you can still buy phones the old way.
JUMP, from T-Mobile
Availability: Started July 14.
How it works: T-Mobile charges $150 up front and $20 a month over two years for the Galaxy S4. Whether or not you get Jump, you pay that and the regular service charges for voice, texting and data. With the Jump plan, you get a charge of $10 a month on top of all that.
Six months after you first sign up for Jump, you're entitled to two phone upgrades every 12 months. You can upgrade twice in the same month, but you'd have to wait a full year for the next one. It's better to spread upgrades out to about six months apart.
If you lose or damage your phone: No problem. The Jump plan replaces insurance, which typically costs $8 a month. So it's just $2 a month more for those who already get insurance to replace phones that get lost, don't work, have water damage or have cracked screens.
If you just want an upgrade: Simply turn in your old phone when you get your new one. T-Mobile will refurbish and resell it.
The catch: T-Mobile charges a down payment - $150 in the case of Galaxy S4. It's the same as you pay when you get your first phone, but you'll be paying that each time you upgrade. If your phone is lost or damaged, and it's not covered by warranty, you pay a deductible of up to $175. In that case, there's no down payment if you are replacing it with the same model, but you have to pay both the deductible and the down payment if you want to upgrade to a different model.
Cost analysis: You break even at 16 months. That is, you have $160 left in payments for your phone, which gets waived when you upgrade through Jump. But you have paid $160 for Jump by that point. At month 17, you pay more for Jump than what you would have to make up in remaining installments. But Jump gives you insurance during that period.
You're better off with Jump if you upgrade before the 16-month mark, but it's still more expensive than waiting out the two years, when the phone is normally due for an upgrade. Let's say you upgrade the maximum twice a year. That's three extra phones over those two years. The fourth is the one you would have gotten anyway when the two years are up. At Galaxy S4 prices, that works out to $690 over two years for the luxury - $450 for the phones and $240 for the cost of Jump. If you would have gotten insurance anyway, figure you're paying just $498 more.
If you upgrade every other year, you're paying an extra $390 over two years - $150 for the additional phone and $240 for Jump. Again, this assumes you would have upgraded anyway after two years. If you would have gotten insurance anyway, it's $198.
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