Want to Save Big? Don't Upgrade Your Phone

You take your brand-new, shiny smartphone out of the box. It has all the latest features and it's the thinnest, sleekest phone you've ever seen.

Then, seemingly before you can even power it up, a new, even cooler phone has hit the market. In those moments, it's easy to wonder: Is upgrading to a new phone even worth it?

That question is even more pressing than usual with the release of Apple's latest iPhones, the iPhone 6 and iPhone 6 Plus. But when deciding whether to upgrade, here are a few things to consider:

How much of a makeover is the new version getting?
How much will the next version change? Is it worth waiting?
How much will you save holding on to your old phone instead of upgrading?

Those first two questions are mostly a matter of personal preference, but even if you do decide to splurge on a new phone, you should know the answer to the third question: how much cash you're giving up that could be used for other things or saved for a rainy day.

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With all the various carriers, plans and contract options out there, coming up with one number for how much you'd save by skipping an upgrade isn't always easy. Let's look at four different scenarios (leaving out taxes and fees, which can vary widely depending on where you live).

Scenario 1: Sticking to Your Current Phone and plan

Louis Ramirez, senior editor at DealNews, says skipping an upgrade makes the most sense in most cases.

"If you currently have an iPhone 5s or even an iPhone 5, you should be OK to run Cupertino's newest operating system," Ramirez says. "Sure, you'll miss a few new bells and whistles, but in the grand scheme of things, today's smartphones are fully equipped. So in terms of performance, your current phone will easily surpass the one-year mark with no problems."

You're not giving up much in terms of performance by forgoing the upgrade, Ramirez says.

Thomas Nitzsche of ClearPoint Credit Counseling Solutions says that if you're upgrading solely to get the latest and greatest model, realize that it won't be the latest and greatest for long.

"Like computers, smartphones seem to become obsolete almost before they are out of the box, and seem to devalue as fast as driving a new car off the sales lot," Nitzsche says.

So when does it make practical sense to upgrade?

"When you are experiencing technical issues," says Andrea Woroch, a consumer savings expert. "An older phone may be operating slower, experiencing shorter battery life as well as screen blackouts. In these instances you may be tempted to upgrade. Before you do, though, consider getting it fixed for less. Repairing these issues instead of opting for an upgrade can save a person hundreds of dollars."

How much you'll save by skipping an upgrade depends on your carrier, whether you're eligible for a subsidized upgrade and what type of phone you want. Upgrading to the newest model would cost you $99 to $399, the usual subsidized price for the latest and greatest phone, or $650 or more for an unsubsidized phone. Either way, you'll save hundreds and avoid a depreciation hit by standing pat instead.

Scenario 2: Upgrading at a Major Carrier

If you decide to upgrade, finding the cheapest way to go about it can be tricky to figure out, thanks to all the different plan options phone companies offer.

"These days, most carriers give consumers the option of buying phones via a subsidized or unsubsidized plan," says Ramirez. "With the (subsidized plan), you get a hefty discount on the phone, but are obligated to stay with the carrier for two years. For most mainstream smartphones, this means you'll pay $199 for the entry-level model and are obligated to fulfill a two-year contract."

With an unsubsidized phone, you'll pay the phone's full price, but you don't have to sign a contract, so you're not locked into anything.

Our analysis shows that when it comes down to total costs, you'll probably end up paying about the same over the first two years of your new phone's life, whether you choose subsidized or unsubsidized. (Obviously, your real-world costs may vary; our analysis is based on midrange plans and usage.)

But Ramirez says that, over the longer term, no-contract plans are usually the way to go.

"The unsubsidized plans usually include a discount on your monthly payments. These discounts can shave up to $25 a month from your bill. So in the long term, you'll actually pay less with the unsubsidized phone," Ramirez says.

Scenario 3: Getting a New Phone With a Cheaper Carrier

As Nitzsche points out, many cellphone carriers are changing their business models. There's a lot of competition, and consumers are starting to realize that lesser-known services are often equally worthwhile.

Republic Wireless, for example, offers a $25 monthly plan that includes unlimited talk, text and data. Unfortunately, there are really only two phones you can use with the carrier, so fancy iPhone upgrades aren't an option. If you buy Republic's Moto G phone at $149, here's what your numbers will look like over time (minus taxes and fees):

Over two years, that's a savings of more than 50% over upgrading on a large carrier.

Then, there are more conventional discount providers like Straight Talk, which is operated by TracFone Wireless. It charges a flat fee of $45 a month for unlimited talk, text and data (although data is throttled after 2.5 GB).

While shelling out the cash to buy a brand-new shiny iPhone 5s on Straight Talk (or most late-model smartphones) can be tough, you're likely to save money over the long term compared with a major carrier.

Although not as cheap as Republic, your total costs are still significantly less than with mainstream carriers, especially if you bring your own phone.

Scenario 4: Taking Your Old Phone to a Discount Carrier

If you're able to unlock your current major-carrier phone and take it over for free to a discount carrier like Straight Talk, H2O Wireless or Ultra Mobile, you can save a substantial amount of money.

Ramirez cites another discount carrier, Virgin Mobile, as an example of how much is potentially at stake.

"You're looking at $35 a month on Virgin versus $80 a month on Verizon (considering a similar prepaid plan)," Ramirez says. "On a yearly basis, you're looking at savings of at least $540. Over a span of two years (which is the length of the average phone contract), you'll save $1,080 by choosing a discount carrier like Virgin Mobile."

Overall, it's clear the longer you can hold out for that new phone, the better. Especially once you have a totally paid-off, unlocked phone in your hands, there is a huge range of carriers and plans that can save you big bucks over the long haul.