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Should I Choose Prepaid or Postpaid Phone Service?

Mobile phone with SIM card an SIM tray next to it on a counter top

In the United States (and probably most other countries), mobile phone service can be purchased on either a "prepaid" or "postpaid" basis.

Prepaid phone service is paid for in advance every billing month. The plan limits, if any, are "hard" limits that are strictly enforced and cannot be exceeded. The monthly cost, therefore, will always be the same.

Postpaid phone service is billed at the end of every billing month for services used during the preceding month. The plan limits, if any, are "soft" limits that can be exceeded; but doing so usually will result in overage charges. The cost for postpaid service, therefore, may or may not be the same from month to month.

I've been using prepaid service since 2008, when my then-postpaid carrier and myself had a falling-out over questionable overage charges. Because I was no longer under contract, I canceled the service and opened a prepaid account with another provider as a "temporary" solution. That temporary solution wound up lasting more than a decade. As of this writing (in 2020), I'm still using prepaid phone service. Even when service coverage issues forced me to change providers when I moved, I opened a prepaid account with the new provider.

That being said, the fact that prepaid phone service makes sense for me doesn't mean it will make sense for you. Both prepaid and postpaid phone service have their advantages and disadvantages, and neither solution is right for everyone. Understanding the benefits and drawbacks of prepaid versus postpaid phone service will help you make an educated decision.

Let me explain it to you.


In the Beginning, There was Postpaid

When cell phone service first became popular among ordinary people, it was on a postpaid basis. That was because phone calls were billed by the minute, SMS was billed by the message, and data was billed by the kilobyte. This per-unit billing system meant that there was no way to know how much a person's bill would be until after the billing cycle had run its course.

Billing customers after the fact for services they'd already used also meant that the phone carriers were extending credit to consumers. Prospective customers were therefore required to undergo credit checks before they could open postpaid mobile phone accounts. Consumers with no credit or marginal credit were required to make security deposits before their service was established, and those with poor credit couldn't get postpaid cell phone service at all.


Early Prepaid Phone Service

The first prepaid mobile phone plans were targeted to people with less-than-wonderful credit. Providers wanted to expand their reach to people who were poor credit risks, but they wanted to do so without incurring collection costs if those consumers failed to pay their bills. Billing subscribers in advance for service packages with hard limits (meaning that the services would simply stop working when the limits were reached) was the obvious solution.

Because postpaid plans were still being billed on a per-unit basis, early prepaid plans were also structured around units of service. Prepaid users purchased packages of minutes and messages and replenished them as needed. If a subscriber failed to replenish their account within a certain time after it was exhausted, the phone number would be revoked and the account would be terminated.

By the mid 2000's, most prepaid phone services had switched to per-month billing cycles with unlimited talk and text, and various amounts of mobile data. The amount of mobile data determined the cost of the package. This remains the most common pricing model in the prepaid mobile phone service segment.

Carrier Device Restrictions on Prepaid Service

Until a few years ago, most CDMA carriers in the United States restricted the phones that could be used on prepaid service to older and less-popular models, which typically were sold at deep discount compared to their original cost. This made prepaid service more affordable to a wider segment of society, but it also meant that it was impossible to activate a high-end phone on most CDMA carriers' prepaid services. This is no longer true. Most CDMA carriers will now activate any phone approved for its postpaid service on prepaid, if that's what the consumer wants to do.

Restrictions on which devices could be used on prepaid never existed for GSM carriers because the GSM standard itself requires carriers to accept any compatible, unlocked device on their networks. Until recently, however, the phones that carriers sold to prepaid customers tended to be older, less-popular models. If a customer wanted to activate a high-end phone on a U.S. GSM carrier, they'd have to buy it from a third-party source. But once they had the phone, it would activate on the carriers' services with no drama (assuming that it was compatible, of course).


Prepaid Phone Service Today

At the time of this writing (in 2020), all four major United States mobile phone carriers (Verizon, AT&T, T-Mobile, and Sprint) offer prepaid service under their own brands.

There also are a large number of Mobile Virtual Network Operators (MVNO's) who purchase service at wholesale from the primary providers, and re-sell to consumers it under their own names on a prepaid basis. These MVNO's include Boost Mobile, Tracfone, Cricket, Red Pocket, H20, Mint Mobile, Ting Mobile, Walmart's StraightTalk service (which is actually provided by Tracfone, essentially making it an MVNO piggybacking on another MVNO), and many others. A few of these MVNO's are actually owned by the companies on whose services they piggyback.

The type of customers who choose prepaid has also expanded beyond the original target market of credit-challenged consumers. Nowadays, many people choose prepaid because they don't want to be locked into a contract, because they have concerns about identity theft and don't want to provide personal information for a credit check, because they only need a number temporarily (for example, for a short-tern job assignment in a place where their primary carrier doesn't provide service), or simply because prepaid service is less expensive than postpaid service.

Prepaid is also a popular choice among parents whose youngsters have run up huge postpaid bills by over-using data services. When the data allotment on a prepaid plan is exceeded, it won't result in any overage charges. The service will either stop working or slow down, depending on the carrier. This forces youngsters to learn how to ration their data use, while also eliminating the possibility of surprise overage charges.

From the carriers' perspective, prepaid service eliminates the risk of non-payment for services that have already been provided. That's one reason why carriers charge less for prepaid service than they do for postpaid service. Collection costs eat up a significant portion of most carriers' postpaid revenue. Prepaid completely eliminates those costs.

The other reason why prepaid service is less expensive is because carriers know that prepaid consumers tend to be budget-conscious; and because prepaid customers aren't locked into contracts, they can easily jump ship to another carrier if they're not happy. That forces carriers to compete on pricing to an extent that borders on cutthroat.


Prepaid and Postpaid Cell Phone Service Compared

Both prepaid and postpaid service have their advantages and disadvantages. Because carriers change their plans very frequently, however, the information on this page is necessarily general in nature. You should consult the carriers' sites for the most current information.


Advantages and Disadvantages of Postpaid Phone Service

Advantages of Postpaid

Disadvantages of Postpaid


Advantages and Disadvantages of Prepaid Phone Service

Advantages of Prepaid

Disadvantages of Prepaid


Is Prepaid Service Right for You?

It really comes down to your own communication needs. If all you need is phone, text, and data services that work in most places, and can live without roaming or the extras that postpaid service includes, then you can save quite a bit of money by using prepaid. Prepaid might also be a good choice if you have a child or young teen who hasn't learned to limit their data use yet because you won't get any overage bills.

In my own case, I only need basic voice, text, and data services. I don't care about the postpaid goodies I'm missing, and I don't care if I occasionally miss a phone call because I don't have roaming. I'm a Web developer, not a trauma surgeon. No one dies if I'm unreachable for a few minutes because I'm driving through a dead zone.

For me, therefore, choosing prepaid service from a provider with good coverage makes sense. I save a lot of money, and I have signal almost anywhere.