T-Mobile's announcement this week that it will end cellphone contracts in favor of month-to-month payments raises a question: Should we all drop our contracts?For many of us, the answer may be yes.The average American household coughed up more than $1,500 for cellphones and service in 2012, up 7 percent from the previous year, according to a survey by Consumer Reports. The magazine called T-Mobile's new Simple Choice plan "a big step in the right direction.""People are switching more to prepaid plans because they are often less expensive and they are offering better phone options like the iPhone and Galaxy S3," said Logan Abbott, president of MyRatePlan.com, a Web service that compares phone plans and receives a commission from the carriers. "All the carriers are going with prepaid-plan options."Even the language is changing in the marketing of these plans, replacing prepaid with no contract, Abbott said."T-Mobile went out of its way this week to not call it a prepaid plan," he said. " Prepaid has a negative association with people who have bad credit and need to pay month to month."But since the Great Recession, the number of no-contract cellphone customers has skyrocketed from 18 percent in 2008 to 28 percent, according to figures from Sprint. By 2015, the market share for these plans is expected to jump to 30 percent.One upside to a no-contract plan could be better customer service, Abbott said.The recent Consumer Reports reader survey supports that. For the third year in a row, Consumer Cellular, a Portland, Ore., provider that has only no-contract plans, was rated No. 1 in customer service.The company, which has partnered with AARP and focuses its marketing on the 50-and-older crowd, has grown fast. Since 2005, its customer base has increased from 30,000 to 1 million and its revenue from $17 million to $250 million."With no contracts, we know customers can change at any time," said John Marick, CEO of Consumer Cellular. "Our company and philosophy have been built on customer service."Another positive aspect to a no-contract plan is price transparency, since the service contract and phone are separate purchases.For example, T-Mobile said this week that the Apple iPhone 5 will be available starting April 12 for $100 upfront and $20 a month for two years on top of its service plan. Other new smartphones, like the Samsung Galaxy S4 and the BlackBerry Z10, will also be available with similar plans and no-cost financing of the phones.Once the phone is paid off, your bill will go down $20 -- something that does not happen when you buy a phone with other major carriers.Consumer Reports editors point out that AT&T and Verizon charge $200 initially for the iPhone 5, plus an unknown monthly fee that's included in your bill as long as you use the phone."So you might be paying for the phone long after you've forked over the full price," they write.No-contract deals have also improved by offering unlimited plans for voice, texting and data, Abbott said. Family plans, with built-in discounts, can also be found without contracts, he said.Some no-contract plans are getting more sophisticated in telling clients when their minutes are almost up for the month and enabling them to switch to a bigger plan instantly."We can text or email our clients and tell them when they are reaching their limits and make a recommendation based on how they are trending," Marick said. "With the push of a button, they can change their plan."Before you switch to a no-contract plan, figure out if you are still in a two-year contract and how much it would cost to leave. Early termination fees can reach $350 when you first buy the phone, but the major carriers will reduce that each month.Teresa McUsic's column appears Saturdays. TMcUsic@SavvyConsumer.net
Find out when your contract is up. Contact your carrier. Most contracts are for two years and then go month to month.
Figure out your usage. Check your bill for the past three months to see how many minutes you have used, how much texting you've done and how much data you've used.
Prepaid plans rated highly by Consumer Reports readers include Consumer Cellular, TracFone, Straight Talk, T-Mobile, Verizon and Net10. Most carriers now offer a prepaid plan, so start with them and try to negotiate a deal.
Look at the coverage maps. Make sure your plan covers your area and watch for fees for roaming.
Remember that you can keep your cellphone number if you switch to a no-contract plan.