Use your credit card to cut smartphone costs

By Michael Lloyd

Mobile networks have no choice but to pass on the ever-rising costs of top handsets to their customers. To attract new subscribers, mobile phone providers try to keep the initial cost of devices as low as possible, instead incorporating payment for hardware into customers' monthly charges. But while getting a new phone with little to no money down might seem like a good deal, you'll likely end up paying more than you have to in the long run. Instead, you may be able to save money by buying a phone and a SIM-only contract deal separately, using a 0% interest credit card.

"Buying a phone and SIM-only contract separately might require an initial upfront payment, but in the long run, it can save a lot of money when compared to buying a handset as part of a monthly contract," Shahrum Gilani, founder of HandsetExpert, said in response to emailed questions. According to a February 2016 study conducted by HandsetExpert, those savings can total around £113.

"[W]e found that in 77% of all cases we measured, contracts are more expensive than buying the same phone and taking a SIM-only tariff," Gilani said. "So most of the time, you're being charged more for exactly the same product. SIM-only tariffs also have the benefit of typically having shorter contract lengths compared to traditional pay-monthly contracts, so you have greater flexibility." buy-smartphone-with-credit

How to pay upfront, but spread the cost
The problem is, of course, that many people can't afford to pay for a top-end handset in one fell swoop. However, if you have a credit card with a lengthy 0% interest period on purchases, you may be able to use the card to buy the phone and contract. Then, you can pay off the balance, interest-free, over the same period you would have paid the smartphone contract.

For example, signing up for EE's current featured deal on the Samsung Galaxy S7 costs £45.99 a month, with an upfront cost of £49.99 for 4GB of data and unlimited minutes and texts. The deal will cost you a total of £1,153.75 over the course of a two-year contract. However, you can buy the device directly from Samsung for £569 and pair it with a monthly £15 bundle from giffgaff that includes 4GB of data, unlimited texts and 1,000 UK minutes. The total cost of this route is £929, for a savings of £224.75 over two years (though you do sacrifice the unlimited talk time). On a card that's interest-free for at least 24 months you could pay £38.71 a month.

If you prefer iPhones, 02 will allow you to pay only £9.99 upfront for the iPhone 6s, and £55 monthly for 24 months for 20G of data, and unlimited texts and voice calls. After two years, your total out of pocket will be £1,329.99. Purchase the same device from Apple's website for £539 and pair it with an unlimited giffgaff bundle for £20 a month, and you'll only pay £1,019 -- a savings of £310.99. On a card that's interest-free for at least 24 months, you could pay £42.46 a month.

When you pay off the cost of the phone, consider leaving the SIM-only plan on your card (and pay the bill on time to avoid interest, if your 0% period ends). It's always wise to keep a recurring payment on a credit card that you know you'll pay off. It'll not only help your credit score, but it can help prevent the card from becoming dormant.

Be wise, do your research
While putting a phone and SIM-only plan on a credit card can work out to be a great deal, it can go south quickly if you fail to pay off the phone before the end of your 0% promotional offer. If you don't pay it off, you'll end up paying the representative APR, generally about 18.9%, on the remaining balance. Additionally, if you miss a monthly card payment, or make it late, you could lose the introductory 0% APR early.

You'll also need to do some digging to see if using a card to buy a phone and SIM-only plan is truly the cheapest route. For instance, if you've been with the same mobile network for a while, you may be able negotiate a decent discount on one of the latest handsets, as providers want to keep their customers, and keep them happy.

However, investing an hour or two working out where you'll get the best deal might not be a bad exchange for a plan that could leave you hundreds of pounds better off.

See related: The dangers of card tarting, 5 steps to applying for cards you're likely to get

Published: 25 May 2016