How Does a Prepaid Cell Phone Work?

Michael Kwan
SIM card on smart phone

Of the estimated 237 million Americans who use a cell phone, nearly 50 million used a prepaid card. There are a number of reasons why you might be interested in getting a prepaid cell phone, and the process of getting one is actually very easy to understand.

Prepaid Versus Contracts

The biggest difference between prepaid phone plans and more traditional cell phone plans is simply how payments are handled.

In the case of prepaid phones, also known as pay as you go phones, you pay for the service before you use it. The account must already be loaded up with the appropriate funds and plan before the phone can be used. With more traditional plans, also known postpaid plans or being "on contract," you generally pay for any charges after you've already incurred them.

Another major difference is that prepaid users can typically adjust their plans each month (or over almost any period) based on their current usage needs. Depending on their contract, postpaid customers may not necessarily have the same freedom.

When a prepaid account is empty, the phone will no longer work. The phone also may have limited options when traveling internationally, and you may not be able to port your phone number if you choose to switch prepaid providers.

Fees, Costs, and Expiration Periods

There are many variations of cell phone plans without contracts, depending on your specific needs and situation.

  • Pay per use: You pay set fees for each voice minute, text message, or quantity of wireless data used (like 25 cents per minute).
  • Pay per day: You pay a set fee for each day, usually offering unlimited calls and texts (like $3 per day).
  • Value packs: You buy bundles that result in a lower per-unit cost than pay-per-use (like $5 for 100 text messages).
  • Monthly plans: You prepay for a month of service based on the amount of voice, text, and data you require (like $40 per month).

In all cases, you typically need to preload your account with a dollar amount and maintain enough of a balance to cover any charges incurred. The expiration period for the funds is generally longer with larger top-up amounts. A $10 prepaid card may expire after only a week, but a $100 card may expire after a year. Check with your carrier for details.

Getting Started With a Prepaid Phone

Whether you are buying a brand new phone or you simply need to activate a new prepaid service, the process is relatively straightforward.

  1. Purchase your prepaid cell phone or SIM card to use with your existing phone online or in-store, including through authorized retailers like Walmart. Be sure to check compatibility and coverage before selecting your provider of choice.
  2. Buy a prepaid card or have a credit card (or other method of payment) available to pay directly.
  3. If you are not buying directly from an agent that can help you with the process, you will probably need to activate your phone or SIM card through the wireless provider's website.
  4. Look on the website for the activation page. It will ask for the special code either on the phone or the SIM card you just purchased.
  5. You may then need to enter the special service PIN associated with the prepaid card you bought, or you can usually buy a new plan through the website.
  6. You will generally be asked to create a new account at this point. Follow the on-screen instructions. The website may ask for such information as your name and zip code.
  7. After confirmation of your account activation, it may take a few hours before your phone (or SIM card) connects to the network and becomes operational. Try calling your new number from a different phone to see if it works. Contact support if it's still not working after a couple days.

Just Pay as You Go

Whether you have poor to no credit or you'd simply like to keep your monthly costs in check, prepaid phone plans can be a smart and easy way to stay connected with friends and family. Just be aware of their possible shortcomings and always check for coverage in your area before signing up.

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How Does a Prepaid Cell Phone Work?