Free Cell Phone Deals Come with a Price

Major cell phone service providers such as Sprint or Verizon will often entice new customers with free or low-price cell phones thrown into the deal. This can be a benefit if you've been looking to upgrade your current cell phone or wanted to get an additional cell phone for your tween without paying a full price. But before you rush into the phone store, you should be wary of some details that may cost you more than you initially thought. It turns out that free cell phones aren't always free.

Full price taxes on free phones. You may pay taxes on the full market value of the phone. This is true for California residents. If you purchase one phone for $179 and get an equivalently priced phone for free, you will be taxed the same rate for both the free and the full-priced phone whether you agree to a service contract or not. Check your local state laws to see if this applies.

Quality. Your phone quality and support may be lacking. The free phones thrown in may not be the best of the bunch or will be obsolete in the future. This isn't necessarily a bad thing, depending on your intended use. The first phone for your tween or teen may not need to be the latest and greatest.

Rebates. Getting that second phone free doesn't always mean you walk out of the store without paying a dime towards costs. Instead, some companies charge you a discounted price and have you get a refund via a check or gift card through a sometimes complicated mail-in rebate system. One company I got a rebate from required us to cut out the bar code from the cell phone box, cut out a portion of the purchase receipt, sign it, mail it to the company listed on the receipt and then wait up to two billing cycles to receive a gift card equivalent to the price we paid in the store. You would think that with all the 3G and 4G technology on phones you should just be able to dial in your rebate.

Activation Fees. Activation fees also apply to your free phone purchase IF you buy it in-store. Some companies will waive the activation fee if you purchase online. But one disadvantage of online purchases is sending a phone back if you don't like it. You could be charged a restocking fee plus shipping. If the model you think you want is also available in stores, go to the store and play with it first.

Accessories. The stores may also try to sell you accessories for your phone such as protective cases and slip covers. These are often overpriced when compared to similar items sold in non-branded accessory stores. You can get even sweeter deals online from wholesalers.

So what could a "free" cell phone theoretically cost you? Let's say you purchase a new phone for $100 and get a second equal phone for free. You may end up paying $100 for the first phone, $100 for the second phone and a $25 activation fee on both phones. That's $250 so far. If the sales tax is 10%, you can tack on an additional $20. If you need a protective slip cover or carrying case for your new phones, those could run to $17 a piece, adding another $34. If it doesn't come with a car charger for either phone, many can be purchased in-store for $25 each. So your grand total walking out the store could be $404. After your mail-in rebate, that drops down to $304, minus any postage. Even if your free phone is an individual purchase, you could still end up paying $152 before you leave the sales counter.