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T-Mobile will buy your AT&T or Verizon smartphone. What's the catch?

CNET's Marguerite Reardon takes a look at T-Mobile's new plan to entice wireless customers to jump ship from their existing carriers.

T-Mobile is doing everything it can to swipe customers from AT&T and Verizon.

Its latest program to lure customers away from rivals offers to pay off the balances owed on financing plans used to buy smartphones and tablets. This could be a good deal for many consumers, especially as large carriers move away from contract plans imposing early termination fees (ETFs). T-Mobile has already been paying off those ETFs for customers.

How good is this new plan, really?

In this edition of Ask Maggie, I take a closer look at T-Mobile's new offer, and I suggest an alternative that may actually put more money in your pocket if you're switching carriers.

Dear Maggie,

I'm considering a switch to T-Mobile. I'm on Verizon's Edge program and don't have an Early Termination Fee, but I still owe money on the devices I bought on the Edge program. I read this week that T-Mobile will pay off carriers' fees if I switch, as well as the outstanding cost of my phones and tablets.

Is there a catch? I'm sure there's some fine print I should know about before jumping from Verizon, right?

Thanks,
Verizon Defector

Dear Verizon Defector,

You are correct that T-Mobile has just launched a new program to pay off devices bought under its competitors' equipment installment plans.

This offer is a logical move for T-Mobile, which last year introduced a program that pays off early termination fees for those who switch from AT&T, Verizon and Sprint -- its biggest national competitors.

T-Mobile claims there are 29 million people stuck with the other carriers because of a device payment plan. With Carrier Freedom, T-Mobile will now pay off a customer's device payment plans up to $650. Pictured: T-Mobile CEO John Legere. Sarah Tew/CNET

It also makes sense given that AT&T and Verizon are phasing out early termination fees in lieu of monthly device payments. ETFs were originally instituted as a way to lock in wireless customers. Service providers said they had to charge these fees to recoup the subsidies they were paying on the devices.

Eventually, though, customers came to hate being locked into service contracts. That's one reason T-Mobile introduced its Uncarrier no-contract plans, which also eliminated device subsidies. Recognizing that most wireless consumers don't want to pay full price for their phones and tablets, T-Mobile also offered an interest-free device payment plan.

AT&T and Verizon now have their own versions of this plan. AT&T calls its program Next, while Verizon has Edge. Rather than sign contracts with ETFs, customers pay for their smartphones in monthly installments. Customers who cancel service have to pay the remaining balance of the device.

Even though it's not considered an ETF, it still has the same effect -- discouraging customers from defecting to other carriers.

T-Mobile wants to help Next and Edge customers make that switch, and it's doing that by paying off the balances they owe on their devices.

But as you suspected, there's some fine print.

$650 cap

T-Mobile will pay off the balance, capped at $650. This may or may not be an issue depending on how expensive the device is that you purchased from Verizon or AT&T. Also, depending on how much T-Mobile offers you for the trade-in, you may owe more money on the device. The way this program works is that T-Mobile will offer a trade-in value for your used device. And then it will issue a prepaid credit card that is capped at $650.

Hand over your device

As part of the deal, you're also required to hand over your device to T-Mobile and then buy a new one through T-Mobile's device-financing program. This shouldn't be too surprising, given the company just paid off the balance of your device. But it also means that you can't sell it or pass it on to a friend or relative. This may not be a big deal, unless you have a device worth more than $650.

It's different if you've subscribed to a two-year contract and T-Mobile agrees to pay your early termination fee. That program doesn't force you to hand over your device to T-Mobile, though you'll still have to buy a new one through the carrier. This means you can dispose of that older phone or tablet any way you want, and still get T-Mobile to pay off the contract with your current carrier.

T-Mobile determines the value of your used device.

The way the program actually works is customers must "trade in" their devices, which means T-Mobile gets to determine the trade-in value. That could be less than the remaining balance on your Edge or Next plan. Once again, you could end up paying the difference out of your own pocket.

There are three main checks that T-Mobile does to determine the trade-in value for each smartphone. Specifically, it's looking for whether the phone:

  • Turns on
  • Has visible water damage
  • Has a cracked screen

If it passes this inspection, T-Mobile guarantees the best trade-in value on your phone compared to AT&T, Verizon, and Sprint. If a customer finds a better trade-in value within seven days, they can get the higher trade and a $50 bill credit.

Credit not cash

T-Mobile isn't offering cash to customers who switch. Instead, it will credit you toward the purchase of a new device and then provide a prepaid card, which can be used anywhere, but cannot be exchanged for cash. This might not be an issue since you're switching to T-Mobile, but you'll still need to get a device and pay for service.

Thank you for waiting

Another thing you should know: T-Mobile won't pay you on the spot when you sign up for your new plan. You have to submit your bill to the carrier, and the company will then send you your prepaid card with the balance after you've bought your new phone. What's more, you'll actually have to shell out the money yourself to pay off AT&T or Verizon. That might not be a big deal to everyone, but it does mean you need funds on hand to pay off your former carrier.

The bottom line

There is a strong resale market for smartphones. So before you agree to T-Mobile's plan, you may want to see how much you can get for your used smartphone on a resale site like NextWorth or Gazelle. If it's more than than what you owe AT&T or Verizon, consider paying off the balance yourself, trading in your device on one of these resale sites and keeping the remaining cash for yourself.

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.

CORRECTION March 26, 2015 11:20 a.m.: This story incorrectly stated how T-Mobile's reimbursement programs works. The company offers a credit for new devices and provides the balance in a prepaid card that can be used anywhere, but cannot be redeemed for cash. The story also clarifies the $650 cap for devices that are traded in. The story has been updated.