If you are a subscriber to one of the top four cellular service providers in the U.S.—AT&T, Verizon, Sprint, and T-Mobile—chances are you have an equipment installment plan (EIP). This relatively recent offering, which lets you pay off your phone as you go instead buying it all at once, has virtually eradicated the notorious two-year contract that everyone hated having to sign.
This has seemingly benefitted both providers and consumers. Traditionally, service providers would sell customers phones at a deep discount and recoup their money by selling higher-priced service plans. With the rise of EIPs, providers can lower service rates because customers pay for their phones in full. And while consumers are now swallowing the full price of a brand new phone, the lack of any money due up front (except taxes) and the lower service rates save them money over time because eventually the phone becomes completely paid off.
Unless it doesn’t.
EIPs only save consumers money if they do, in fact, pay off their phones. If you upgrade your phone before you pay it off, EIPs save you nothing. My iPhone 6 Plus is currently selling for $650 on the Apple website and I pay approximately $30 a month. If all goes as planned, I should pay my phone off and enjoy the benefits of low monthly service charges in about 22 months. Hmm… that’s a familiar number. It’s almost… two years.
Why are consumers so willing to shell out the full MSRP of a brand-new phone but so loathe to commit to sticking with the same service provider for two years? I think the success of the EIP is due to a rising characteristic of the times—an unwillingness to commit.
You see it everywhere among millennials: their marriage rates are low, they are waiting longer to have children, they are less interested in homeownership, and many of them are eschewing driving altogether, much less buying vehicles. With the pace of change—technological, economic, and social—racing ahead at breakneck speed, this generation is wary of committing today’s foremost sin: being outdated. As baby boomers are quick to claim, this might have a lot to do with consumerism and short attention spans (“Yeah this HD television is great but it’s not 4K great…”). But I think there is an environmental aspect to the culture as well. Cutting-edge technology is often advertised as more eco-friendly, streamlined, and efficient than existing options. Old cars are gas guzzlers; buy a new electric vehicle. CDs take up space and can’t be easily deleted; switch to a digital music collection. Homes built 100 years ago contain toxic materials and inefficient heating systems; build a new modern home.
But the price of constantly changing is… well, a price. A major appeal of EIPs is that one never needs to have anything less than the latest greatest model of phone. This ease of upgradability puts consumers into a particular mindset: “I am essentially leasing my phone so that I can upgrade as soon as a better phone comes out.” So when Apple releases the iPhone SE (which Twitter users have joked stands for “Senseless Edition”), which is actually the same size as the iPhone 5 with minor improvements, the word “better” gets overlooked for the word “upgrade.” New doesn’t necessarily imply improved but if your intention is to never be a model behind, this is likely not going to matter to you.
Furthermore, if you decide to cancel your service, you used to be able to pay an early cancellation fee and take your phone and business elsewhere. But with an EIP in place, if you cancel your service, you also lose your phone, unless you have the money to pay off the remaining balance. That sounds a helluva lot like a contract to me.
My suggestion is this: buy out. Whether you pay your phone off quickly by making large payments or you simply keep the phone for a few years after you pay it off in full, resist the urge to immediately upgrade. EIPs are no better than two-year contracts if you never keep a cell phone longer than a couple of seasons. I have decided to keep my iPhone 6 Plus for five years. I will pay off my EIP next month. I pay about $30 a month for my EIP so I calculate I will save approximately $1800 by the time I get to upgrade again. Not only will the iPhone 11 surely be all the rage by then (and will probably be amazing) but I’ll have saved up more than enough to pay for it in full.