If you’re making monthly payments on your phone, you may be wondering if it’s possible to pay it off early. You may be wondering if that’s a good idea. And if you aren’t asking these questions, you probably should be.

Wireless carriers like AT&T, Verizon, and T-Mobile love installment plans because they force customers to stick with their service. They make a fortune: not only do you eventually pay for the phone anyway, but these mainline plans are massively over-priced compared to lower-cost alternatives.

You should pay off your phone early because as soon as you do, you can switch to a cheaper carrier and save serious money.

In this article, I’ll show you how to calculate how much money you can save by paying off your phone today. Then I’ll explain how to pay off your phone, including the specific unlock procedures for AT&T, Verizon, or T-Mobile customers.

I’ll also offer suggestions for people who might not have the money to pay off their phones early. Finally, I’ll touch on how you can buy your next phone independently (and get a good deal), never getting trapped into an installment plan again.

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What is an installment plan?

An installment plan is an agreement to make payments over time, usually over two or three years. The major wireless carriers sell smartphones (and other devices) on installment plans by default, usually with two or three-year terms.

Sometimes an installment plan is nothing more than a series of monthly payments that add up to the cost of the phone. Other times, the company may sweeten the deal by offering a promotion or discount for taking the installment plan. Even in this case, you almost always come out behind.

An installment requires you to stay with that wireless carrier until you’ve paid off the plan and own your device. If you pay off your phone early, you’re free to leave.

Why should you pay off your phone early?

Paying off your phone early allows you to immediately switch to a lower-cost plan. The average person shouldn’t need to spend more than $25/month for service. However, the average postpaid plan from the major carriers is $75/month. If you’re over-paying, the sooner you can cut that bill, the better.

You’ll come out ahead by paying off your phone early. You can work out how much you could save with these pieces of information:

• Your current plan cost
• Your remaining installment plan balance
• How many months you have left on your installment plan
• Your potential new plan cost

You can find most of this information on your phone bill.

Example: John currently has a $75 phone plan and a $25 device payment for a total monthly bill of $100. His installment plan has 14 payments left, so it would cost $350 to pay the phone off immediately.

John has found a lower-cost plan that meets his needs for $25 a month, but he would have to pay off his phone to switch to this plan.

The cost is the same whether you pay off your phone immediately or keep making monthly payments. However, for every month you have left on your installment plan, you’re missing out on another month of savings because you’re stuck with your current, overpriced plan.

Let’s compare John’s phone expenses for the 14 months ahead:

 

If he switches: He’ll spend $350 today to pay off his phone, then he’ll spend $25 a month on the cheaper phone plan. $350 + 14 x $25 = $700

If he doesn’t switch: He’ll continue to pay $100 a month with his current plan ($75 for service + $25 device payment each month). 14 x $100 = $1,400

By paying off his device early, John will save $700 over the next 14 months.

Don’t be fooled by “bill credits” and promotions

Sometimes, wireless carriers run promotions where they offer a discount on a phone. The pitch might sound like this: “Special offer: Save $500 on this phone!” or even “Get a free phone on us!” The fine print will explain that you get this discount over two or three years as a series of bill credits. 

Example: John has a $25 device payment, but this time he also gets a $15 bill credit, which reduces his device payment to $10. His plan is still $75, so his total bill is $85. As before, his installment plan has 14 payments remaining, but if John wants to pay the phone off early, he loses the remaining credits. Paying off his phone today would cost 14 x $25 = $350.

If he switches: He’ll spend $350 today to pay off his phone, then he’ll spend $25 a month on the cheaper phone plan. $350 + 14 x $25 = $700

If he doesn’t switch: He’ll pay 14 x $85 = $1,190. 

Even though John was getting bill credits, he would still save $490 by switching today.

How do you pay off your phone early?

You can pay off your installment plan balance by visiting your carrier’s website or app or calling customer support.

Quick Tip: Paying off your phone is the first step to switching plans, but it doesn’t end your service. It drops the device payment from future bills.

How do you unlock your phone?

Modern cell phones are technically capable of operating on any wireless network. However, when you buy a phone from the carrier, it’s usually locked to their network. Once you pay off your phone, it is essential to ensure it is unlocked. In some cases, this happens automatically, and in some cases, this requires you to take action.

Quick Tip: Even if you already own your phone or have finished making payments, you should confirm it’s unlocked.

Here are the current policies and procedures for AT&T, Verizon, and T-Mobile. If you have a different carrier, search their website for unlocking instructions or contact customer service.

AT&T: 48 hours after making your final payment, you can request unlock here. There are a few additional conditions listed here.

Verizon: Verizon automatically unlocks phones after 60 days, even if you’re still making payments. You still have to pay off your device to switch carriers.

T-Mobile: T-Mobile requires you to pay off your installment plan first. Once that’s done, follow their unlock instructions. Depending on your device, you may be able to do it yourself or may need to contact customer support.

What if you can’t afford to pay off your phone?

There’s no way around the reality that you must pay off your phone to leave your current carrier. The remaining balance could be a little or a lot depending on how many payments you have left on your installment plan. If you don’t have the spare cash to pay it off, there are a couple of options.

I generally don’t recommend getting into credit card debt. However, some credit cards have started offering the ability to split a large purchase (like paying off your phone) into monthly payments. For example, Chase has a feature called My Chase Plan, and American Express has a feature called Plan It. These programs charge a nominal fee for splitting a large purchase into monthly payments, but they waive the usual interest charges. A program like this would allow you to pay off the phone company without needing all the cash at once.

If alternative financing is unavailable or doesn’t feel right, ensure you’re at least on the cheapest suitable plan that your current carrier offers. Also, if you have multiple lines on your account, consider each line separately: you may be able to move one line to a cheaper plan today but not another.

How do you avoid installment plans in the future?

You can avoid installment plans by buying your next phone independently. Instead of going through a carrier, purchase an unlocked phone directly from the manufacturer (e.g., Apple) or a retailer (e.g., Amazon, Best Buy, etc.). You can also save money on your next phone by buying a refurbished phone or buying “one generation behind”.

Whatever wireless plan you have, it should be simple to transfer your service to your new phone. In many cases, this is something you can do yourself in just a few minutes.

Bottom line

At this point, I hope you see that installment plans trap you into high-priced phone plans. You should pay off your phone early and avoid installment plans in the future. By owning your phone, you can decide how much you pay for service, and the monthly savings can be huge.

You may have found this article because you’re thinking of switching from one of the Big Three wireless carriers to another, but I hope you’ll look at lower-cost alternatives!