Do the math and switch to prepaid

Right now, T-Mobile has a promotion where you receive a free $25.00 refill card with any prepaid phone purchase. Phones start at $19.99 and go up to $99.99. Overnight shipping is free but you will have to pay sales tax. Prepaid phones have no contract and the prepaid minutes do expire in either 90 or 365 days (once you reach $100 in refills). If you refill before the expiration, all the minutes will rollover.

Also, to sweeten the deal, if you search "T-Mobile" at Bing.com (formerly Live.com), you can get an additional 35% cashback. (I previously blogged about how to use Live.com.) So that means the $19.99 phone will be $13. And the $99.99 phone will be $65. Not bad. And if you already have a T-Mobile prepaid phone, you can order it just to get the $25 refill card, and then you'll have a spare phone in case you lose or break yours.

So is a prepaid phone right for you? Let's do the math.

Of all the different phone plans out there, I think the cheapest monthly plan is $30 ($360/year). Now if you're like me, someone who sits next to landline phone all day that rarely uses the cell phone except on weekends and commute times, your usage is probably pretty low.

The T-Mobile prepaid plan is $100 for 1000 rollover minutes. That's 83 minutes/month. If you talk triple that amount (250 minutes/month), then it will be $300 – still cheaper than the lowest monthly rate. And the $300 is $300. No taxes or fees, unlike your monthly bill.

If you review your last few billing statements, you'll know on average how many minutes you use. Chances are, you use less than 250 minutes, perhaps even less than 100. If that is the case, then you are overpaying big time. Now if you're consistently using over 400 minutes a month and it's NOT business related... well I hate to say it, but you are undoubtedly "churng hay" (long-winded in Chinese). The proof is in the billing statement. It's a fact. Sorry. But don't feel bad, some of my favorite people are churng hay. We stay in touch via email.

So what are the downsides of prepaid? First of all, your phone is not free (subsidized), so you will have to buy a phone. As stated above, phones range from $20-$100 and your choices are a bit limited. Second, it costs 10¢ to send text and 5¢ to receive. So depending on your usage, that may be a significant added expense. But if you only need a phone for the basic needs, then prepaid is the wise choice for you. Third, you cannot use an iPhone on any prepaid plan.

I won't lie, I am so jealous of all of you that have iPhones. I love how you can remotely update your Facebook status so I know you're on the freeway to somewhere... or stuck in line waiting to buy some world-famous pastries... or about to feast on a burrito the size of a small child... Yes, life is unfair. Sigh.

As an Apple fan, I long to find an unlocked iPhone to put my T-Mobile sim card into. But as much as I want an iPhone, I cannot fathom spending $70/month to use it. That's $1680 for your 2-year contract! $1680 can buy me a Macbook, or iPod Touches for every household member, or 33 family dinners at Black Angus... and I'll still have money left over to pay my prepaid minutes! Just not worth it.

So do the math and see if prepaid is right for you. You may be surprised. In these tight economic times, you should try to trim your expenses anywhere you can. Bottom line: Talk less and save a ton! And with all that money you save, you can take my family out to dinner :)