iPhone 6: To upgrade or not

Cape Town - In the wake of Apple’s launch on Tuesday of iPhone 6, iPhone 6 Plus and Apple Watch (smartwatch), the question again came up on whether cellphone contracts are good or bad.

For many South Africans, a contract is the easiest way to get their hands on the latest smart devices and the score of emails from Fin24 users, who are waiting with bated breath for the new Apple gadgets to reach South African shores (ETA: just before Christmas), underscores this notion.

A trade-in offer by iStore doesn't make it easier for consumers to resist an upgrade.

The iStore offer states that iPhone owners are entitled to a guaranteed cash back of up to R5 000 when they trade in their current iPhone for a new one, as part of a new contract upgrade, contract renewal or cash purchase at any iStore in South Africa.

READ: SA deal for iPhone 6

Assuming the iPhone 6 will retail for the same price as the iPhone 5s 64GB Gold (Silver or Space Grey) at R11 999 and users take up the iStore trade-in offer of up to R5 000 depending on which Apple device are traded in, they will still have to add R655 per month to their spending budgets for a 24 month contract. (Based on the latest prices on iStore)

Fin24 user Jacques said: "I'll definitely upgrade to the 6 Plus, but won't trade in my 4s for R2 500."

Janine, who has an iPhone 4s, said she "would definitely take the iPhone 6 no matter what it costs!"

Another 4s owner, Celeste, said she "loves her phone to BITS!, [but] would definitely be upgrading to the 6 Plus [depending on the price though...]".  "I would like to be able to do it on contract," she said.

"I have a 5 and will definitely upgrade to the 6 Plus! Probably get the watch as well just for the hell of it," said Darren.

Colbert echoed many other users with this response: "I am using an iPad mini and surely am going to upgrade to the new iPhone 6. I like the brand and I am in love with the brand period."

Juan already popped into the Vodacom store to put his name on the waiting list as he is already due for an upgrade. "Can't wait," he exclaimed.

And although the overwhelming remainder of the responses to the iPhone 6 and 6 Plus read like this: "Can't wait. Definitely upgrade. Far too impressive not to have!", there were some users who felt it wasn't worth adding more strain to the budget.

The debate on whether to upgrade or not also ensued on Twitter.

@DeeOnMoneyZA For me, its bad. take an S5 for example. you can get it for R7400 buying cash. and R11000 on mtn over 2yrs. paying more is bad

— KayOne The Great (@AfikaSoyamba) September 10, 2014

Fin24 user Leon A said, “Ultimately market will be driven by cost.  I am a current 4s holder on the prepaid platform, but unfortunately it looks like this was the last truly affordable iPhone.  Even though I love my iPhone, it features and robustness, I cannot justify spending R10K+.

"It looks to me like Apple has missed the boat and I am going to look towards the S4 mini as its ultimate replacement.  Although running on Android, it is functional in an everyday sense and very affordable," he writes.

Thula said she is using an iPhone 4 and "is fine with it". "I would rather invest that money in meaningful assets."

Christien said he has an iPhone 4s, and wish he could upgrade, but he doesn't have that kind of money!

"Nope, just had a look at the specs... nothing new," said Thuthukani.

Fin24 asked two debt experts about the pros and cons of cellphone contracts:

Renee Marais of DFX said that it is important that consumers understand upfront that cellphone contracts are agreements that are legally binding.  

“When you purchase a cellphone on contract, you enter into an agreement with the cellphone company to purchase a phone. The contract would include the choice of phone and how you will be paying for it. This is similar to you buying a fridge or TV. You agree to take possession of the item and to pay for it over a period of time."

This is the biggest con, said Ian Wason of Intelligent Debt Management Group.

“Cellphone contracts are not flexible. Once you have bound yourself into the contract, you are not allowed to cancel it unless you pay a cancellation fee, which can be extremely costly and can set you back a lot more than adhering to your monthly payments would," he warned.

READ: How to survive your cellphone contract

Marais urged consumers to read the terms and conditions carefully. "This is true for any contract or agreement you ever enter into.

"There are many options to choose from and you need to ask the consultants to explain the pros and cons of each option. You should also ask for a quotation which you can think over and then decide on which is best for you."

Wason advised consumers should look for a cheaper option when deciding on taking a cellphone contract. "You do not have to break a bank as companies sometimes run promotions, which offer cheaper packages. Cellphone contracts are also often cheaper on call and data rates than prepaid packages."

A cellphone on contract can also be seen as "good" debt though, he said.

"A cellphone contract is similar to purchasing a car.  When you buy a car and it is used for business purposes that enables you to earn money and generate wealth, it is great.

"However, you don’t need to go out and spend a large amount of money on purchasing a Porsche! An affordable car that does the job, is just fine."

He also advised consumers to use essentially free applications such as Whatsapp, WeChat, BBM and Mixit to communicate as they are much cheaper than texting and calling, and can save you money.

@DeeOnMoneyZA "Good Debt" if it makes you economically active and provides you with a return or a profit. Bad Debt if abused #debt

— Mott (@Bulldog_Best) September 10, 2014

What to look out for before entering a contract

Marais agreed with Wason, stating that a good reason for taking out a contract is if you use it to generate income, for example to run a business.

However, you still need to take out the most affordable contract that is suitable to your needs, monitor your monthly bill and make your payments on time.

It is also important that you do an affordability test before entering into the contract to avoid defaulting on your payments at any time during the 24-month contract period as this can damage your credit record.

Value for money

Wason said if you do enter into a cellphone contract for an expensive phone and you fall behind with the payments, then it becomes debt. This is called “incidental credit” because the idea is not for you to stop paying and continue to use the device, but it is not worth it for the cellphone company to repossess the phone as it has been used and has no value for them to recover the debt you owe them.
 
Missing payments on your contract can have serious financial implications for you, he warned. "The cellphone company can lodge legal action against you to collect the money you owe them. They will also add interest and legal fees (collection) fees will be your responsibility. For the cellphone use, if you do not pay for your airtime and or data, they will simply cut your network line off."

On whether to upgrade or not, Wason said: “You do not necessarily need to upgrade because you are due for one. You can always upgrade your contract at a later stage, but you cannot downgrade. If you do not need a new cellphone and it is time for an upgrade, think about it carefully.”

Maybe Abe has the right idea: "I have an 8Gig iPhone 4 and am keeping it. Why? IT WORKS!"

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 - Fin24