Should I take the free iPhone 7 deal or lease my next phone?

The iPhone 7 is almost here, and wireless operators and Apple want to make sure you get your hands on it.

AT&T, Verizon, T-Mobile and Sprint are all running promotions offering new and existing customers a free iPhone 7 with 32GB of memory. Sounds like a great deal. But is it really as good as it sounds? In this edition of Ask Maggie, I explain who should consider taking advantage of these promotions and who would be better off sticking with one of the device upgrade programs offered by the carriers or Apple.

Dear Maggie,

I'm a big Apple fan boy and I always want the latest and greatest iPhone. I keep seeing promotions to trade in my iPhone 6S for a free iPhone 7. Is this really a good deal? It sounds too good to be true.

Thanks,
iPhone fanboy

Dear iPhone fanboy,

For a limited time, each of the four major wireless carriers will let customers trade in an iPhone 6, iPhone 6 Plus, iPhone 6S or iPhone 6S Plus for a free 32-gigabyte iPhone 7. The programs differ in some minor details, but for the most part they all work in a similar fashion. Whether this is the right deal for you depends on a couple of factors, including which version of the iPhone 6S you have.

First, let me explain how this free iPhone 7 program really works, because in truth you aren't really getting anything for free. Instead, the carriers are offering a credit to your account. This means that if you take the offer, you can't simply cancel service and walk away with a free iPhone 7. You still have to subscribe to the service for 24 months, or you owe the balance of the cost of the device.

Here's how it works. A customer can trade in an existing iPhone and receive a credit for $650, which can be applied to the monthly fee for an iPhone 7. Each month, the customer will be billed $27.08 but will then see a credit for that amount on their bill (it could take two to three billing cycles for the credit to start showing up).

If the customer wants more storage or prefers the larger iPhone 7 Plus, she can pay the difference up front. For example, if you want a 128GB iPhone 7 rather than the 32GB version, you'd pay $100 and then still receive your $27.08 credit each month to pay off the remaining cost of your device. And you'd pay $200 for the 256GB version. If you want an iPhone 7 Plus, you'd pay $120 and then an additional $100 more for each tier of storage. Some carriers actually let you spread out that difference over 24 months.

These programs come with a couple of caveats. First, the devices that are traded in need to be in good working order, which means they need to turn on and be free of major flaws like a cracked screen. A user must also own his device in order to trade it in. This means that if you're leasing your phone or you're enrolled in a monthly payment program, you'll have to pay off your device in full before you can trade it in for the $650 credit.

Another thing to keep in mind is that the carriers are giving the same $650 credit for any iPhone, regardless of how much memory the device has. This means that you'll get the same amount for an iPhone 6 with 16GB, which when new cost you $650, as you would for an iPhone 6S Plus bought last year with 128GB, which originally cost $949 new.

What this means is that the promotion is a great deal for someone who bought the iPhone 6 with 16GB of memory two years ago when it came out. But it's not so great for someone who bought the most expensive iPhone 6S Plus last year for $949 and still has a balance of $474.50 left on that device.

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Instead, you might want to consider one of the early-upgrade programs offered by each of the main US carriers and Apple. Under a device upgrade or leasing program, a customer pays a monthly fee for the device. Usually these payments are divided up over 18 to 24 months. After you've made 12 payments or have paid off about 50 percent of the cost of your device, you're eligible to upgrade, provided you trade in your old one.

Depending on your credit score and which device you're upgrading to, you may not need to make a down payment for your new device. You'll begin making monthly payments again on the new device.

The benefit of these programs is that you don't have to pay off the balance of your existing phone when you want to upgrade. You simply trade it in and continue making monthly payments on a new device.

These programs are great for customers who want the latest smartphones and who always buy high-end versions of devices with the biggest configurations of memory.

By contrast, the carrier promotions are really best suited for people who own the cheapest version of either the iPhone 6 or iPhone 6S and for those trading in older iPhones and other devices. These folks will essentially break even if they want to stick with the entry-level iPhone 7, which now comes with 32GB of storage instead of the 16GB of storage that was available in the cheapest versions of the iPhone 6 and 6S.

Ask Maggie is an advice column that answers readers' wireless and broadband questions. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

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