8 Reasons to Ditch Your Mobile Contract

Mobile Phone Contracts are costing up £1,000. Go PAYG SIM only, and buy an affordable handset outright.

8 Reasons to Ditch Your Mobile Contract

79% of people in the UK are in what’s known as ‘handset and contract’ deals[]. Locked into a monthly payment to a mobile phone operator. Walking around with the latest and greatest handsets.

Are you paying £20-40/month or more to O2, T-Mobile, Three, Vodafone, or one of the big telecom operators in the UK for your mobile phone?

I pay £8 for my mobile phone.

How? I don’t believe in mobile phone contracts. Here are 8 reasons why.

1. The handset is not free

Many fans of mobile phone contracts love them because they get the handset ‘for free’. This is far from the case. The cost of the handset is bundled into the monthly payment, with a hefty margin.

Let’s take the 128GB iPhone 12 Pro from O2. It’s £30 upfront then £60.10/month for 36 months for a 90GB data plan with unlimited minutes and texts.

£30 + (£60.10 * 36) = £2,193.60

I can buy the handset outright for £999 direct from Apple. So now I have to ask myself, is the cost of mobile service worth £1,164.6 over 3 years, or £32.35/month. Can I find a 90GB data plan with unlimited minutes and text for less than £32.35/month?

Yep, I can get an unlimited data plan for £22/month on Sim Only. I’ve just saved you £372.60. Thank me later.

And that’s before looking at my usage, or whether an iPhone 12 Pro is a sensible handset anyway.

2. Handset upgrades are not free

Your provider might offer you a “free” upgrade. But your contract is being extended - by another 12, 24 or 36 months.

Another 36 months of margin for the phone operator. More monthly instalments coming out of your bank.

You’re also being pushed onto the latest “package”, and latest handset, both of which you likely don’t need.

3. Contracts encourage you to get the ‘latest and greatest’ handset

iPhone 12 Pro
iPhone 12 Pro

Mobile operators are pushers of the latest handsets.

There are now diminishing returns in smartphones. The changes are not night and day. You need to ask yourself: do you need a fancier camera?

Or are you just getting the latest and greatest so you can show off to your friends and family?

Let’s think about this for a minute. A 36 month iPhone 12 Pro contract has a lifetime cost of £2,193.60 over 3 years. What if I got the iPhone XR? I know it’s a couple of years old, but it’s a perfectly decent handset. And what if I got a ‘nearly new’ iPhone XR?

The exact same plan, 90 GB data, 36 months costs:

£30 upfront + (£32.70 * 60) £1,207.2.

I’ve just saved you £986.40. Thank me later.

Don’t fall for the latest and greatest handset trick.

4. Contracts charge you for stuff you don’t use

Data plans, minutes, texts, insurance. They’re all chucked at you. But you don’t know if you even need them.

Do you know how much data, minutes or SMS messages you use?

Do you even send SMS messages anymore? I thought they died a decade ago.

Mobile operators are masters of making you pay for stuff don’t need or use, and selling it to you. Instead, you are better off looking at what you use.

In our worked example, the 90GB plan I don’t need. Pretend I’ve looked at my data usage: I figure I’m almost always on WiFi so only use around 1GB a month.

That nearly new iPhone XR on a 1GB plan is now looking like:

£30 + (£23.70 * 36) = £883.2. I’ve just saved you £1,310.4

Don’t be tricked into paying for a bundle of stuff you don’t even use.

5. You are locked in. It is expensive to get out.

As soon as 14 days have passed after the signature of your mobile contract, you’re in… You are now set to pay the value of the contract. Try to cancel and you’ll be faced with significant cancellation charges. Probably buying out the entirety of the remainder of your contract.

You may have luck renegotiating onto another contract, but chances are, you’ll be faced with a hefty fee.

6. But the operator can change the price of the contract, upwards.

Whilst you are locked in. The operator is not.

A little known fact is the price of your mobile phone contract can go up. For example, O2 can increase the cost of your mobile phone contract by inflation once a year.

Get used to your contract going up by RPI every year.

7. Non payment can stain your credit record.

One month, you find it tough to pay your contract. You can’t cancel it, because buying out the contract is too expensive.

So you miss a payment.

The mobile company now puts a non-payment mark on your credit record.

Now a non-payment mark on your credit record might not be the worst problem in the world. It’s unlikely to stop you getting a mortgage, but it may affect your ability to borrow or get other similar contracts.

Better to not be in the contract in the first place.

8. Broken phones can cause costly problems.

Costly Phone Damage
Costly Phone Damage

I once worked with a colleague who loved getting the latest Samsung handset. Every time a new one would come out, he and his wife would get the latest and greatest handset.

One year they did this without fail. The same month he got his shiny new phone - he dropped it. Smashed the screen. Without insurance. Tears and frustration all round.

Because it was non-warranty damage, he was faced with the choice of paying for a screen repair or buying another handset. The operator would do nothing about it. The cost of the screen repair was not cheap, a couple of hundred quid from what I recall.

Sometimes, the damage is not economical to repair. So you end up with a broken phone, the need to buy a new handset, and a contract you can’t use or get out of.

Insurance is an option for more costly handsets. But so is owning a cheaper handset and looking after it. It doesn’t always work. The other-MM accidentally put one of his handsets through the washing machine. It didn’t end well!

How to break free of mobile phone contracts

Mobile phone contracts are bullshit. Break free of them.

Here are some simple steps:

My handset is a Nexus 5X bought outright for £250 in February 2016. I’m on a Pay As You Go SIM which I pay around £8/month for on average. It’s a perfectly good handset, and I hope to get another year out of it.

So a 36 month lifetime cost is £538. A saving of £1,655.60 over the latest and greatest iPhone 12 Pro on an O2 36 month contract.

That £1,655.60 saving goes to our savings & investments, our emergency fund, and our early retirement planning.

If you can’t afford £250 or a handset, or are trapped in a cycle of contracts you can’t get out of, save £25/month over the next year.

Put it away in a separate savings account. Then when your contract is up, buy an affordable handset outright and go PAYG SIM only.

Break free of those mobile contracts.

Subscribe now, follow me on Twitter @moneymagery, stick by your principles and you’ll be mortgage-free in no time.

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Sources and Attribution

  • SALE (c) Daniel X. O’Neil, CC-BY
  • broken phone (c) spline splinson, CC-BY
  • iPhone 12 Pro (c) Tatsuo Yamashita, CC-BY
  • https://www.statista.com/statistics/387262/market-share-of-mobile-phone-packages-in-the-uk/