smart spending

Upgrade your phone? Not if you want to save money

You take your brand-new, shiny smartphone out of the box. It has all the latest features and it's the thinnest, sleekest phone you've ever seen.

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Then, seemingly before you can even power it up, a new, even cooler phone has hit the market. In those moments, it's easy to wonder: Is upgrading to a new phone even worth it?

That question is even more pressing than usual with the release of Apple's latest iPhones, the iPhone 6 and iPhone 6 Plus. But when deciding whether to upgrade, here are a few things to consider:

  • How much of a makeover is the new version getting?
  • How much will the next version change? Is it worth waiting?
  • How much will you save holding on to your old phone instead of upgrading?

Those first two questions are mostly a matter of personal preference, but even if you do decide to splurge on a new phone, you should know the answer to the third question: how much cash you're giving up that could be used for other things or saved for a rainy day.

With all the various carriers, plans and contract options out there, coming up with one number for how much you'd save by skipping an upgrade isn't always easy. Let's look at four different scenarios (leaving out taxes and fees, which can vary widely depending on where you live).

Scenario 1: Sticking to your current phone and plan

Louis Ramirez, senior editor at DealNews, says skipping an upgrade makes the most sense in most cases.

"If you currently have an iPhone 5s or even an iPhone 5, you should be OK to run Cupertino's newest operating system," Ramirez says. "Sure, you'll miss a few new bells and whistles, but in the grand scheme of things, today's smartphones are fully equipped. So in terms of performance, your current phone will easily surpass the one-year mark with no problems."

You're not giving up much in terms of performance by forgoing the upgrade, Ramirez says.

Thomas Nitzsche of ClearPoint Credit Counseling Solutions says that if you're upgrading solely to get the latest and greatest model, realize that it won't be the latest and greatest for long.

"Like computers, smartphones seem to become obsolete almost before they are out of the box, and seem to devalue as fast as driving a new car off the sales lot," Nitzsche says.

So when does it make practical sense to upgrade?

"When you are experiencing technical issues," says Andrea Woroch, a consumer savings expert. "An older phone may be operating slower, experiencing shorter battery life as well as screen blackouts. In these instances you may be tempted to upgrade. Before you do, though, consider getting it fixed for less. Repairing these issues instead of opting for an upgrade can save a person hundreds of dollars."

How much you'll save by skipping an upgrade depends on your carrier, whether you're eligible for a subsidized upgrade and what type of phone you want. Upgrading to the newest model would cost you $99 to $399, the usual subsidized price for the latest and greatest phone, or $650 or more for an unsubsidized phone. Either way, you'll save hundreds and avoid a depreciation hit by standing pat instead.

Americans spend big on smartphones | silhouettes social networking: © Rawpixel/Shutterstock.com, Dollar bill icon: © karawan/Shutterstock.com, US flag motif: © Chen_108/Shutterstock.com

Scenario 2: Upgrading at a major carrier

If you decide to upgrade, finding the cheapest way to go about it can be tricky to figure out, thanks to all the different plan options phone companies offer.

"These days, most carriers give consumers the option of buying phones via a subsidized or unsubsidized plan," says Ramirez. "With the (subsidized plan), you get a hefty discount on the phone, but are obligated to stay with the carrier for two years. For most mainstream smartphones, this means you'll pay $199 for the entry-level model and are obligated to fulfill a two-year contract."

With an unsubsidized phone, you'll pay the phone's full price, but you don't have to sign a contract, so you're not locked into anything.

Our analysis shows that when it comes down to total costs, you'll probably end up paying about the same over the first two years of your new phone's life, whether you choose subsidized or unsubsidized. (Obviously, your real-world costs may vary; our analysis is based on midrange plans and usage.)

Total cost at a major carrier, unsubsidized vs. subsidized

AT&T GoPhone (unsubsidized with unlimited talk and text) vs. Mobile Share Value Plan (subsidized with unlimited talk and text) for a 16GB iPhone 6. Prices retrieved Sept. 9, 2014.

Upfront price of phoneMonthly billTotal 2-year costTotal 4-year cost
Subsidized, 2-year contract$199$80$2,119$4,039
Pay-as-you-go plan (no contract)$649$60$2,089$3,529
Difference$30$510

But Ramirez says that, over the longer term, no-contract plans are usually the way to go.

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