Smartphones: Early-Upgrade Plans Range from Risky to Ripoff

The odds of saving money with AT&T Next and T-Mobile Jump are stacked against you.

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AT&T; T-Mobile

Wireless carriers are kind of like the house in a casino, their service plans the equivalent of Three Card Poker or Let It Ride. You might think you’re getting a great deal–a rare advantage that could save you money–but it’s always a mistake to underestimate the house. Whenever some new service plan rolls out, you can be certain that the odds of saving money are carefully stacked against you.

T-Mobile’s “Jump” and AT&T’s “Next” are the just the latest examples. Both plans are billed as a way to upgrade your phone faster in exchange for an extra charge on your monthly bill.

In theory, it’s a great idea, especially if you’re the type of user that always likes to have the latest smartphone. Still, signing up for either of these plans is a risky bet that can easily work out in the carriers’ favor.

Here’s the basic breakdown of how each plan works (not including the cost of wireless service).

T-Mobile Jump

  • You place a down payment on the phone at the time of purchase, usually about $150 for a high-end phone.
  • With or without Jump, you must pay a monthly charge–around $20 for high-end phones–which goes toward paying off the full price of the phone.
  • The Jump plan costs another $10 per month. This allows you to trade in the phone for a new one after six months, in exchange for another down payment.
  • Insurance is included with the Jump plan.

AT&T Next

  • With Next, there’s no down payment, activation fee or any other up-front cost for the phone. You do not pay the typical $200 subsidized price for a new phone.
  • Instead of paying up front, you pay $15 to $50 per month, depending on the phone; the Galaxy S4, for example, costs $32 per month.
  • After 12 months, you can trade in the phone for a new one, again with no down payment.
  • Payments cease after 20 months (except for the cost of wireless service, of course).

Keep in mind that with both plans, you don’t get to keep your original phone after trading it for a new one. That’s going to be important when calculating how good of a deal AT&T Next and T-Mobile Jump really are.

Doing the Math

Both plans hinge on the idea that after a certain point, you’re just throwing money down the drain. The longer you hang on to your phone, the worse of a deal it becomes. We want to figure out at what point AT&T Jump or T-Mobile next become a raw deal compared to other options.

On AT&T, this calculation is fairly straightforward because there are no up-front or additional costs to consider. Using the Galaxy S4 as an example, you pay $32 per month. That’s $768 over two years, with one upgrade at the halfway point.

Good deal? Absolutely not, compared to AT&T’s existing early-upgrade option, which lets you upgrade anytime after six months for an extra charge of $250, plus a $36 activation fee. With a new smartphone like the 16 GB iPhone 5, the total cost over two years is $686. That’s $200 for the original phone, $200 for the second phone, $250 for the early upgrade and $36 for activation.

It gets worse: With AT&T Next, you don’t get to keep the phone. That means you can’t trade it in to a buyback site like Gazelle or Nextworth, keep it for backup or hand it down to a family member. You’re also stuck in a vicious cycle with AT&T Next; should you decide to leave AT&T, the only ways out are to suffer 20 months of inflated monthly hardware costs, or to pay off the full price of the phone immediately. With a traditional early upgrade, you’re free to go after your two-year contract is up at no extra cost.

Bottom line for AT&T Next:┬áIt only makes sense if you want to upgrade every year but can’t stomach large up-front payments. Just remember that you’ll pay a lot more for the privilege of lower monthly installments. In the long run, the house cleans up.

T-Mobile Jump is more complicated. On top of the $10 per month that T-Mobile charges for the early upgrade privileges, you still owe a down payment of about $150 for most high-end phones, plus additional installments of around $20 per month. You also have the option to upgrade after six months instead of a year.

Still, we can factor all of that into the formula to figure out how much T-Mobile Jump costs over two years. If you only upgrade at the halfway point, the total cost is $1,020. Upgrade twice, and the total shoots up to $1,170 because of the extra $150 down payment. Upgrade every six months, and you’ll pay $1,330 over two years.

Without a Jump plan, the only way to upgrade is to pay off the full price of the phone every time. The actual amount you pay at the time of upgrading depends on how many months have passed, but no matter what, you’ll end up paying upwards of $600 for a new phone, every time. (The Galaxy S4, for instance, costs $630 at full price.)

If you’re only upgrading once a year, or less often, avoid T-Mobile Jump. With the Galaxy S4, you’d pay $1,260 over two years. That’s $90 more than with Jump, but don’t forget you can keep your original phone, or trade it in to a site like Gazelle to make up the price difference. And unlike Jump, you’re not throwing money away if you decide not to upgrade immediately at the one year mark.

(Side note: While T-Mobile seems more expensive than AT&T overall, it only looks that way because of the $20 or s0 monthly installments that are included in the calculations above. The cost of the actual wireless service on T-Mobile is much cheaper, and in most cases should make up for the overall price difference with AT&T.)

Bottom line for T-Mobile Jump: It’s only a good deal if you know you’ll be upgrading at least a couple of times in a two-year span. To that end, you must be comfortable switching between brands, since most major vendors like Apple and Samsung only refresh their flagship phones once per year.

There’s one more wrinkle to this story, which is that Verizon is rumored to be working on its own early upgrade offering. Although details aren’t known yet, the odds of Verizon’s version being any better of a deal are slim to none. No one’s giving away free money; they’re just coming up with new ways to spend it.