Whether you are in the grocery store, the doctor's office, or at your child's soccer game, you are almost certain to see someone talking on a cellular phone. Communication is of the utmost importance today, and many consider a cell phone a necessity instead of a luxury. Before acquiring a cell phone, you must decide which type of wireless plan you will use. Will you sign up for a yearly (or multi-year) phone plan and make monthly payments? Or will you purchase a prepaid phone having no yearly sign-up requirement? Individual circumstances are the key here, and there are some important questions to ask yourself before you arrive at your decision.

• How often will the cell phone be used? Will it be used daily, a few times a week, or only for emergencies?
• Will the phone be used for business purposes?
• How much money are you willing to spend each year in order to have the use of a cell phone?

How Prepaid Cell Plans Work

The new cell phone user buys a prepaid phone (which usually comes with what is called a "starter kit") from a wireless company, mass retailer, drug store, or other establishment offering them for sale. In addition to the phone, this starter kit usually includes: a charger to recharge the phone's battery from home, an earpiece for when the phone is used while driving, and a quantity of minutes which will automatically be available for use once the phone is activated.

Purchasing and activating a prepaid phone

The cell phone user will then call a toll-free number from his home phone (also known as his land-line phone) to activate the cell phone and get a phone number assigned to it. The new cell user will answer a question pertaining to the geographic area his phone calls will originate from. This is a very important question and will determine the area code and phone number assigned to the phone. Roaming charges apply when calls are made from locations not considered as the user's home calling area. The new prepaid user should make sure his cell phone number corresponds to the city, town, or location from which most of his calls will originate. After calling to activate the phone, there might will be a waiting period of 12 to 48 hours before the phone is ready for use. The phone's battery will likely need a full charging at this point also. (Hint for those of you who do not like to set up or install things yourselves: If you purchase the prepaid phone at a wireless phone store, such as in a shopping mall, the sales clerk will very likely do the above step for you. The clerk can quickly activate your phone, assign it a phone number, and you can walk out with your phone ready to use in most cases!)

Keeping your phone active

You need to make sure enough minutes remain on your phone to keep making calls. You will be the one responsible for noticing when your phone is low on minutes. There will either be a screen display on the phone showing how many minutes remain, or you can call a toll-free number to hear this information. You can then purchase more minutes, often in the form of a prepaid phone card. This card will contain a scratch-off pin # along with the toll-free number to call where you will be given instructions on how to add these minutes. Depending on your wireless provider, you may need to call from a land-line phone in order to add your minutes. With some prepaid plans, you will need to have your cell phone with you when adding minutes. In these cases, this is necessary because you will be asked to enter some code numbers directly into your cell phone's keypad as they are recited to you. There is also the option of purchasing minutes online from your wireless provider's website using a credit card.

How often must you purchase more minutes?

You can purchase minutes as often as you need them, but the important thing to realize is that you may have to purchase minutes even when you do not need them. A prepaid plan user must purchase and add more minutes to the phone before the next due date or expiration date. This is a date set by the wireless provider and is usually 60 to 90 days from the last time minutes were purchased. If more minutes are not purchased and added by this date, the phone will become inactive. If the phone is left inactive for a certain period of time, the user may lose his current phone number and need to be issued a different one should he decide to reactivate the phone.

How Yearly Plans Differ from Prepaid

Yearly plan basics

To enroll in a yearly cell phone plan, the customer will be required to fill out an application and provide information so that a credit check can be performed. The customer will then choose a plan that best fits her needs. These plans will vary in terms of the monthly payment required, the amount of minutes allotted each month, the per-minute charge for additional minutes used, and a variety of other factors. The customer will then decide whether to accept the Customer Agreement and be bound to it for the minimum term agreed upon, usually one or two years.

What happens to any unused minutes each month?

Prepaid: As long as more minutes are purchased and added to the phone by the next due date, any unused minutes will be carried over and remain on the phone.

Yearly: Any unused minutes will usually be lost (except for certain plans that allow the minutes to roll over into the next month).

Will my plan include free calling on nights and weekends?

Prepaid: All of your minutes are considered anytime minutes, and you will usually be charged the same rate per minute (whether it be day or night, weekend or weekday).

Yearly: Most yearly plans include unlimited free calling on nights and/or weekends - with nights often being considered as between 9:01 p.m. and 6:59 a.m.

Will there be fees to activate the phone or to terminate the plan?

Prepaid: There is no fee to activate the phone. Since a yearly contract was not signed, there is also no fee to terminate the plan. You simply just stop buying minutes for your phone. If your phone has been deactivated and you desire to use it again, there is usually no fee to reactivate the phone.

Yearly: There is an activation fee often ranging between $20 - $35 (although this fee may be waived if a special promotion is being offered). An early termination fee will be charged if you cancel out of the plan before the one or two year term is up. This fee can be $175 or more.

Will I receive a phone bill each month?

Prepaid: There will be no monthly phone bill. This means there will be no record showing what numbers were dialed, the length of each call, and whether a call was considered as roaming.

Yearly: There will be a detailed phone bill provided every month listing each dialed call. The customer can see the date and time each call was placed along with the length of the call.

What is the price-per-minute charged by my plan?

Prepaid: There can be a broad range of prices charged per minute depending on the number of minutes purchased at one time. If a small number of minutes are purchased (let's say 30), the price could be as high as 50 cents per minute. If a cell user is willing to purchase 1000 minutes, the price can often drop down to 10 cents per minute. It is also important to remember that prepaid airtime prices already include all wireless taxes and fees. (These are the taxes and fees that yearly plan users see listed on their phone bill each month.)

Yearly: Figuring out the price-per-minute is not quite as simple as it seems. Let's consider a phone plan offering 350 anytime minutes for a monthly charge of $39.99. If we do the math, we will find that the price per minute appears to be about 11 cents. But let's not forget that this phone plan offers free calling on nights and weekends. Let's assume our customer makes 500 minutes of free calls this month during these night and weekend time periods. This customer is now actually getting 850 minutes of calling time for his $39.99 charge. This means the price per minute has now dropped to about 5 cents. There will also be taxes and fees added onto the monthly bill. They will include federal, state, and local taxes, in addition to any service or regulatory fees charged by the wireless provider. These taxes and fees can end up adding as much as 35% to the monthly bill.

When is Prepaid the Better Choice?

In some situations, choosing a prepaid phone plan is definitely the better decision. These include such instances as when:

• You know you will make very few calls each month or only use the phone for emergencies.
• You do not have a good credit history and will not pass the credit check required of a yearly plan.
• You want a phone for your child to use but choose to provide her with a limited amount of minutes each month.
• You are not willing to commit to a one year contract for financial reasons.
• You want the option to deactivate the phone without the hefty cancellation fee.

Why Your Business Phone Should Probably NOT be Prepaid

A prepaid plan could very well complicate the situation when used as the sole phone for business transactions. It would be very helpful to have a detailed phone bill provided each month. You may need proof of who you called and when, and a prepaid plan cannot do this for you. There is also the chance you could run out of minutes. You may know you are running low but assume you will have enough minutes to complete your call. If your client ends up talking longer than you expected, your phone could wind up going dead in the middle of the conversation. You do not want this happening when dealing with a current or potential customer. Yearly plan users avoid this situation. They are not left with a non-functional phone when they use up their allotted monthly minutes. The wireless provider gladly provides them with any additional minutes needed, using the "additional minute" charge listed on the yearly contract.

Features Available on a Prepaid Phone

Prepaid phones usually include many of the same features offered on phones used with a yearly plan. A digital prepaid phone often provides the following features at no extra charge: voicemail, call waiting, 3-way calling, use of the Internet, and the receiving of both text and instant messages. Other features may be available but will have an additional charge associated with each use. These can include: the sending of text and instant messages; downloading games, ringtones or wallpapers; the sending of pictures; and the use of directory assistance (dialing 411).

The Final Decision

So think it over. Evaluate your situation, needs, and finances. Perhaps you can't quite decide which plan is best for you. You may be leaning towards a yearly plan but are still a little leary to sign that contract. Remember, you can always start off using a prepaid phone and switch that phone over to a yearly plan several months down the road.