Its estimated that more than 30% of cell phone users on a long term contract never even use their allotted quotas of airtime. While contracts usually come with a lot of perks, in most cases its just a clever ploy to get you in through the door. Free ringtones, 10,000 free text messages and all those gimmicks are what can often entice us to go for a contract and although you might think its free – somewhere down the line you will pay for it.
Pay as you go cell phone contracts on the other hand is a much smarter way to spend. You have complete and absolute control over your spending and you only pay for the minutes you actually use. The fact that you have to pay upfront means that you are never in the temptation of exceeding your call limits.
Although pay as you go rates are higher, the saving is in limiting your calls. If you are on a contract and you exceed your airtime limit they charge you a fortune. I do not know about you, but getting that nasty bill at the end of the month is never nice – especially when its full of unexpected costs.
One of the main problems with a contract is that it binds you – sometimes for as long as 2 years. Getting out of a cell contract mid way though is not easy. Firstly, there's an exist fee you will have to pay and its usually 10-15% of the outstanding amount on your total contract (the sum of the months left to pay until the contract expires). Secondly, an early exit on your contract can severely effect your credit rating which can affect you in the future.
The issue of credit rating is also relevant to discuss here as its one of the main reasons why many people opt for pay as you go. Getting a contract is subject to a credit check and if you fail the check your only option is a pay as you go contract. In the end its not that bad because it does make financial sense and gives you the flexibility to control your spending.
With a pay as you go you can get set up in as little as 10 minutes. Its as simple as getting a starting pack and inserting a sim card. Contracts can take some time to sort out the paper work and sometimes it can be a week before you can make your first call.
In the end it all comes down to your own individual needs. If you are a heavy user who calls a lot then a contract may make better sense for you. However, if you just need a phone to receive calls and use for general day to day calls, then you will find that a pay as you talk plan is a much more economic way of doing it.