two year contracts to end

AT&T, one of the last carriers to offer two-year phone contracts, is getting rid of them.

Starting Jan. 8, the company will stop offering two-year plans and instead offer “Next” plans, an AT&T spokesperson confirmed to NBC News

The company is the last holdout among the major carriers. Sprint, T-Mobile and Verizon ditched two year contracts earlier this year.

What does that mean for consumers? Instead of the carrier subsidizing the cost of a phone, users will have to buy the phone outright or pay for it in installments. For those who choose the latter, they have a wide array of payment options.

AT&T To End two year contracts

AT&T To End two year contracts

The Next 18 plan, for example, lets customers pay off the latest iPhone in 24 payments of $27.09 a month — but they can upgrade to a new phone after only 18 payments.

In the old subsidized plans, there was no way to pay off your phone. If you didn’t get a new phone after two years, you were just paying more money for nothing. Under the new plans, once you’re done paying the installments, your monthly bill goes down.

“With $0 down for well-qualified customers, the ability to upgrade early and down payment options available with even lower monthly installments, our customers are overwhelmingly choosing AT&T Next,” a company spokesperson told NBC News.

“Starting January 8, AT&T Next will be the primary way to get a new smartphone at AT&T. This does not apply to business customers under a qualified wireless service agreement.”

Here’s an explanation of the changes to two-year contracts.

Two-year contracts soon to be a thing of the past

Two-year contracts soon to be a thing of the past

WHAT ARE MY OPTIONS NOW?

Most people now buy and pay for phones in monthly installments, though you can also pay the full price upfront. You can also bring a used device, such as one from a friend or family member who has upgraded to a newer model. Sprint and T-Mobile also have leasing options — you pay less each month, but you don’t get to keep or resell the device in the end.

___

WILL I PAY MORE?

Not necessarily so, even though you now have to pay the full price for a phone.

When you got a discounted phone under contract, you were already paying the balance in the form of fees. For instance, the full cost of an iPhone 6s is $650. Although you pay just $200 at the contract rate, the phone company passes along the remaining $450 in higher monthly fees for voice, text and data. Over two years, the $450 comes to $18.75 a month. Put another way, your phone company is subsidizing your phone by $18.75 a month and tacking that on to the phone bill for voice, text and data.

If you forgo the contract, your monthly bill for voice, text and data is typically reduced by $15 or $25 a month. The $25 discount applies for higher data plans — usually ones you share with family members. In such cases, you’re actually better off buying the phone yourself, as you’re getting a $25 bill reduction but giving up only $18.75 in subsidies.

If your discount is only $15, and you’re giving up $18.75 in subsidies, then technically your bill is going up slightly. What you get instead is flexibility.

___

WHAT DO YOU MEAN BY FLEXIBILITY?

Because phone companies were subsidizing phones, there was an incentive to get the most expensive model, even if you didn’t need that. These days, there are many mid-range Android phones that do what high-end phones did just a few years ago. If you choose one of those models, you keep the savings. That’s also the case if you get a friend or relative’s old phone. You no longer feel that you’re losing out by not claiming the most expensive phone in a contract renewal.

And if your phone lasts longer than two years, there’s no longer the pressure to upgrade just to claim the phone subsidies. You simply pocket the savings.

More important, you’re no longer tied to two-year contracts.

___

DOES THIS MEAN I CAN SWITCH WHENEVER I LIKE?

Yes and no.

If you buy a phone under an installment plan, you’re still stuck with the phone company until you pay off the phone. That said, rival companies often have promotions to pay off the balance for you. And if you pay the full cost of the phone upfront, you own the phone and can switch whenever you like. Just be aware that certain phones work on limited number of networks, so it’s still not total freedom.

___

WHAT IF RATES INCREASE ONCE I PAY FULL PRICE FOR A PHONE?

Phone rates can go up at any time, but that historically hasn’t happened because of stiff competition. In fact, phone companies have been offering more data for the same prices, an effective price cut.

And if your phone company does increase the rates, just go to another. Again, rivals typically offer promotions to switch. You can always take your phone number with you as long as you sign up with the new company before cancelling.

___

CAN I STILL GET A SUBSIDIZED PHONE?

Sprint still offers contract plans, though they aren’t emphasized and they may disappear any day. Verizon offers contracts only to existing customers who renew. At AT&T, contracts will be offered only under certain business plans.

Do you agree with the decision to end two year contracts?  Let us know in the comment section below..