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Why is Prepaid Such a Dirty Word?

prepaid cardI was talking with a friend the other day and we were talking about saving money on some monthly bills.  I had indicated that I was looking into testing out another prepaid cell phone service.  I have tried out Straight Talk and I liked it, but I didn’t like their terms.  You can check out my review of Straight Talk to make your own opinion.I have been looking into Net10 and Republic Wireless as well.  Both of these services are prepaid, but work off of the big networks.

Oh, So Dirty

When I started talking about prepaid, my friends face turned a little sour.  It was strange.  He started looking at me like I was from outer space.  I didn’t know what I had said.  Did I say something inappropriate?  Well, apparently I did and that term was “prepaid”.  I didn’t know that this was a dirty word.  I have found that prepaid services can be a good thing and a great way to save money, so I wanted to dig a little deeper into this.

A Simple Question

I decided to ask my friend why the word prepaid had such a bad stigma.  He told me that he didn’t realize that I was struggling so much financially.  I was a little flabbergasted by his assertion.  why does the word “prepaid” make people think that those using such services are poor?  I assume that since prepaid services were what the majority of the lower class used use on a regular basis, but that trend is changing.  There are many middle class people starting to see how much they can save with prepaid services.  Let me give you an example.

With Straight Talk, I was paying $45 per month for my talk, text, and data.  On Verizon, I was paying $71 per month for the same thing.  This is one reason why I switched over.  As a way to dig deeper into the cost of cell phone service, I have decided to look heavily into Republic Wireless.  They offer service at $19.99 or $29.99 per month depending on how you purchase their phone.  I think their technology is pretty cool, but I have heard some issues with it.  I don’t mind testing it though because they give a 30 day money back guarantee.

This type of savings can make prepaid wireless a very attractive solution for many people. I think people are tired of paying so much for wireless services, but also just tired of being ripped up financially.  I told my buddy that I am doing quite well financially and I was just trying out prepaid services because I wanted to save money where I could.  I don’t think he ever really understood my answer, but it made sense to me.  Why pay a high price for something that can be  had for much less?

Why The Stigma?

I really wrote this to ask you, my readers, why do you think there is such a stigma with the word “prepaid”?  Would you assume that someone using a prepaid service, whether it be prepaid wireless or  a prepaid card, would be struggling financially?  I am just interested to see if I can figure out where my friend is coming from?  Maybe others don’t really check to find better deals than what they currently have.  I don’t know, but I am interested in figuring this out.

Image courtesy of Creditcards.com

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About Grayson Bell

I am an average Joe, who built up over $50,000 worth of credit card debt and had to learn how to break it back down. It took 4 years of learning budgets, secrets, and many other personal finance tricks in order to cut the debt to $0. Now, I push to teach others not only how to get out of debt, but how to use credit wisely and how to start growing their wealth. You can view my other site, Sprout Wealth for ways to grow your money. I am also a freelance personal finance writer who provides staff writing and ghost writing services.

43 comments

  1. I honestly have no idea where the stigma comes from, but I’ll admit that I have it too. But I’m looking into pre-paid plans as well and have to say that Straight Talk is what we’ve been thinking. I’ve heard about the throttling issue but we aren’t incredibly heavy data users. Republic Wireless is interesting but I’ve heard things about calls dropping and I’m not sure that hassle is worth it. But I’m with you. If you can get the same thing for less, who cares what the label is?
    Matt Becker recently posted..Carnival of Financial PlanningMy Profile

  2. As you might have seen on my post a few weeks ago, there is a new plan from T-Mobile that is only $40 for unlimited talk, text and data…with no contract! Thankfully some of these prices are going down and hopefully the trend continues.

    I do think people are turned off by the word prepaid, and now that you mention it the word does have some weird stigma surrounding it.
    DC @ Young Adult Money recently posted..The Weekly Quick Hits RoundupMy Profile

    • I have seen that deal. I hope to see these prices continue to drop and more people jump on board. That being said, I am sure the big carriers will just adjust terms with the prepaid carriers and cause a bad change.

  3. I’ve never commented on your blog before, but I found it a few months ago and have been hooked. Loved all your ideas and practical advice! I actually downgraded from a smartphone to a regular dumb phone. It was for more reasons that just the cost. But, I took it a step further. Since I generally only use my phone for emergencies, I asked my Verizon Wireless store if they offered a pre-paid service where I could keep my purple basic phone (that doesn’t even text) and keep my awesome phone number, but prepay my minutes. I was able to do that, and block incoming texting. Now I only pay when I make a call or answer a call. Even though the monthly plan would have only been around $45, now I am saving an extra $40 a month. Finally, my husband is a pediatrician so yes, I totally know what you mean about people’s jaw dropping when they see that I don’t even have a smartphone. At first I was embarrassed (didn’t want people to think I was greedy and wanting to become rich or something silly like that) but now I’ve learned to be proud of it.

    • Thank you for continuing to come by Liz and I appreciate your comment. Glad you are proud of your prepaid phone. There is nothing wrong with them and they can save you a great deal of money.

  4. Prepaid cards, like in your image, are terrible.

    Prepaid phones have a stigma because back in the day cell phones on contract were hard to come by if you had bad credit so prepaid phones would be your only option. Now that most major carriers are desperate for customers, they’ve relaxed their credit settings and just make people put large deposits down if their credit isn’t great. I have a feeling that soon pre-paid carriers will be taking a larger market share as the technology gets more even across the board with the budget phone carriers. (Now you can get a Galaxy S III on Straight Talk, for instance.)

    • There are times and places for prepaid cards. You just have to find the right one. There are millions that are being used each and every day. I appreciate you providing me some feedback on the prepaid stigma.

  5. Maybe it’s just because you are looking for a deal (something cheaper). In his mind, that means you are trying to cut costs because you can’t get by on your income.
    Brian @ Luke1428 recently posted..Infamous Days Are Not Show-StoppersMy Profile

  6. Yeah, I think that stigma is pretty common out there. We have our prepaid cell phone through T-Mobile. I buy $100 card, which is 1000 minutes of talk/text time, and I can make it last a year if I work at it. Coverage is good too.
    Laurie @thefrugalfarmer recently posted..June Recap – Happy 6 month Anniversary and the Three-Legged GoatMy Profile

    • Nice deal Laurie. I don’t mind people using them and I think they are probably a little more savvy than others. They look for better deals instead of just settling.

  7. Chris Holdheide (@StumbleForward)

    Prepaid can be a great option to save some money. One option I’ve heard a few people using was Boost Mobile. It starts out at $50 a month and every 6 months you pay on time it lowers your monthly bill by $5 dollars until you get it down to $35 a month. What’s great about this option is it allows you to get a smart phone with unlimited data and texting.

  8. I don’t think there is anything wrong with prepaid service and I don’t care what others think. I do not have an experience with this services and I didn’t know that it could be that much cheaper compared to regular subscription based services. I am shocked that companies are charging so much to their base clients who sign a 2 year contract with them. I thought that by signing a contract you were getting a cheaper monthly price than prepaid service. I think I will have to investigate this little bit more.
    Martin recently posted..My Investments 2Q 2013 resultsMy Profile

    • A contract plan is definitely not cheaper. The contract plan was put in place a while ago because people couldn’t afford to buy the phone outright. You would be on the contract until you paid off the phone and then the price you paid would drop. They don’t do this anymore. You could have the phone paid off for years, but still be paying the same amount. This is just pure profit for the carriers.

  9. Maybe it gives off the notion that someone needs to have a prepaid plan to set a limit on him/herself (like lack self-control or something)? Not sure, but I agree initially it kind of gives off a weird stigma, though when I think about it I don’t know where it really stems from. I don’t think that will be the case in the future.
    anna recently posted..4th of July ProposalMy Profile

  10. Well you know I use RW so I don’t have an issue with this!

    But actually I am confused by what you mean as ‘prepaid’ vs. ‘pay-as-you-go’ and ‘no-contract’? I just don’t know the definition. When I talk offline about RW people seem to receive it very positively. I think most people know they are getting gouged by the normal plans offered by Verizon and AT&T.
    Emily @ evolvingPF recently posted..June 2013 Month in Review: MoneyMy Profile

    • I know you are using RW and you are on of the reasons why I want to test it out.

      Prepaid and pay-as-you-go are almost the same. I think they are using different terms to test the market’s acceptance of them. With prepaid, you are paying for the month ahead. With regular contract phones, you are paying for the previous month’s use. Prepaid, pay-as-you-go and no-contract are all relatively the same thing.

  11. I can only have a prepaid phone here and I don’t see a problem with it. The only thing I don’t like is they don’t have a place online where you can check your usage and sometimes it looks like the money just disappears, all the customers complain about it. Also you always seem to be down to $0 when you need to make a phone call urgently. But it saves a lot of money.

    • Good to know Pauline. Many of the prepaid services here now offer “unlimited” plans which is just a set price and you can call, text, and use data all month long. While there might be some “soft” limitations, you can really save some cash.

  12. There is definitely a stigma attached to it, and I’m guilty of assuming the same. Of course this assumption is not correct.
    Michelle recently posted..Make Extra Money – Offline Side HustlesMy Profile

  13. Prepaid…hmmm, I used to have a prepaid cell phone way back in the day. I think I had a bad opinion of the prepaid stuff because it just seemed like a big extortion scheme. You would pay $20 for a “prepaid” card and then it would be gone in 20 minutes, forcing you to return to store and buy more minutes.

    It sounds like these plans have come a long way though in the last six or seven years. I say if it’s cheap and works for you, seize the day!
    Lindsey @ Cents & Sensibility recently posted..Survival Tips for Pursuing Your PassionMy Profile

  14. While services have gotten a lot better and newer phones are available, it used to be that pre-paid was poor service used by only people who couldn’t pass the credit check to get a plan with a bigger carrier. They were, quite frankly, phones for poor people. Having one showed other people that you couldn’t afford a better phone service, or that you were some sort of drug dealer trying to stay anonymous.
    It’s unfortunate that the stigma still exists, because quality has increased so much. I use Virgin Mobile and it is identical to Sprint service and half the price for the same plan as what I had on AT&T.
    Edward Antrobus recently posted..My Day in Small Claims CourtMy Profile

  15. In my humble opinion, I think you are paying for what you get. I used T-Mobile prepaid in between AT&T to Verizon and I couldn’t believe the difference in carrier’s network speed and customer service. T-Mobile prepaid department is completely different from regular T-Mobile, and I felt like they were treating me different just because I was prepaid. Plus the network speed on prepaid was just unbearable. There sure is stigma there for me.
    Peter recently posted..Blogging Insight of the Week: Consistency is the KeyMy Profile

    • I appreciate your opinion Peter. I used Straight Talk and easily found that I was getting better or comparable service to my Verizon phone. They didn’t have good customer service, but their phone service was perfectly fine. I think it all depends on where you live and use your phone.

  16. I remember all the people with bad credit or no credit having to do prepaid because contract phone companies ran a credit check and if you had bad credit, they charged you a huge deposit.

    I’ve had Straight Talk since November. You can’t tell by looking at my phone since I went with the bring your own phone plan and have really nice used AT&T Samsung Galaxy 2’s and when I’m ready to upgrade, I’ll be able to get what I want and just change out my sim and APN.

    People do look at me funny when I say I’m on a prepaid plan. They think we’re only doing it while we’re paying off debt but to be honest, I have no intentions of switching to a contract service. Why pay more for the same thing and get less.

    I recently drove up to Harrisburg PA and used my phone gps the whole way and was amazed that I never lost service. It was great! So long as my phone does what I want and stays reliable, who cares if it’s prepaid.
    cjb recently posted..Two Week Review 6/23- 7/6My Profile

    • Glad to hear about your experience with Straight Talk and being on prepaid. They do have some good service, but it depends on where you live. I love the BYOP programs with these carriers.

  17. I can’t WAIT to get out of this Verizon Contract. I am paying way too much for my phone and used to have a prepaid wireless provider. It was a little bit of a pain-but I was paying a hell of a lot less. I will continue to have a Verizon phone but no more contracts!

  18. I would love to do a prepaid phone, but my husband tried one and the service is very poor in our area. I think there is somewhat of a misnomer often when you try to be frugal and people assume you are hurting for money. In reality, more people could be out of debt and save much more if they would look at all the options and choose the best, most affordable plan for themselves instead of the latest one.
    Kim@Eyesonthedollar recently posted..Eyes on the Dollar 20/20 Roundup #42- Home and Gone AgainMy Profile

    • I heard that you tried prepaid and this is the problem with it. They do not work in all areas and sometimes only one carrier might work in your area.

  19. I think the stigma might be mostly in the US. I know plenty of people who use prepaid overseas in Europe and Asia. I went to prepaid for two main reasons – 1) I don’t use my phone much so I was never using my minutes, especially since when I was with ATT so was everyone I knew so even that didn’t use my minutes, it was a waste of money for no reason, granted I didn’t have a smart phone so no need for internet/data. 2 ) I was moving overseas a lot of getting out of a contract is a PIA, no need to with prepaid, but with TMobile I can still keep my number by topping up the minutes so when I go back to visit I still have the same phone number. Win-Win. I doubt I’ll go back to a contract as I’ll end up losing money in the long run.

    • I will agree with you here. I have many friends and co-workers in the UK and they think our prices for mobile phone service is outrageous. I agree with them.

  20. LOL at your friend’s comment: “I didn’t realize you were struggling so much financially.” I can’t wait for you to retire before him and, while he’s working, say “wow, I didn’t realize you were struggling financially?”

    On a serious note, prepaid phones definitely have a stigma. I’m guilty of viewing them differently, even though they are a better deal.

    My cell phone bill is $110/month, but my employer covers the cost so it would not benefit me to search for better deals (unless I wanted to be a frugal employee?).
    A Blinkin recently posted..Q2 Review – 2013: Is Good News Bad News?My Profile

    • Haha, I will make sure and do that when I retire. I wouldn’t change my cell phone plan if it was covered by my employer. I wish I had that ability.

  21. It’s because we live in a “buffet culture” where we want all we can eat and then some. To me prepaid implies it will run out, which is perfectly acceptable. It helps us from over eating and overspending. Most people however couldn’t fathom their stuff “running out”, even if they’ve never gotten to that point where it would.
    thepotatohead recently posted..Powerball Vs Scratch-Offs : Always Play the Best OddsMy Profile

    • Great point potato head. People want unlimited everything and with prepaid, that runs out. This will help many people stop their over-consumption, but the stigma is just unacceptable to most.

  22. I agree there is stigma. But I am not bothered by it. I just think of all the money I’m saving with my Tracfone and can’t believe people will pay hundreds a month for a cell plan!

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