[Nexus 5 General] PhilipTD:
Last time I was in the T-Mobile store, the clerk told me about their "Jump" program. It sounded great: You give them your old phone, they give you a new one, your monthly payments stay the same. No brainer. Go for it.

Something, however, didn't feel right. I went over the words again in my mind. You give them your old phone, they give you a new one, your monthly payments stay the same. What could possibly be wrong with that?

I took it apart:

1) You give them your old phone.

No problem. It's old. I want a new one.

2) They give you a new one.

Trade in your old, obsolete phone for a band new, cutting edge device. Cool.

3) Your monthly payments stay the same.

Paying the exact same amount for a brand new phone as what I was paying for my old phone. I can afford that.

Sound too good to be true?

It is.

When you do the math, it becomes obvious that when you jump, you lose money.

Think about "You give them your old phone". Notice the word "give". That means you get nothing in return. You may be thinking, "No, I AM getting something in return - a band new phone!

Wrong. T-Mobile makes it seem like it's all one big happy transaction. The Jump, however, actually consists of two separate transactions: giving them your old phone, and, getting a new phone.

1) Giving them your old phone

T-Mobile makes you think that when you give them your old phone, you get a new one in return. It sounds great because we think that the value of the old phone necessarily is less than that of the new phone. You say to yourself, Wow! I can't believe they're doing that! Well, they're not.

You have been paying off the old phone for quite a while, and have built up "equity" of a few hundred dollars, which is the basis for the true value of the old phone. When you jump, you give T-Mobile those hundreds of dollars as a gift. It seems like you get back the amount still left on the loan because T-Mobile "pays" it for you. That amount is always smaller than what you've already paid. It has to be, otherwise, T-Mobile wouldn't pay it. They make sure that they never lose money on the deal in two ways. 1) THEY tell YOU how much your old phone is worth, and, 2) You can jump only every six months (after which the amount you've paid on the loan exceeds what's left).

Now, what is the value of their payment of the balance of the old phone? Zero. When you give them the phone, you no longer owe the balance. You don't have the phone any more, they do. If you were to continue paying the loan off, you would be building up T-Mobile's equity rather than your own.

What is really happening is the following:

- You pay full price for your old phone, and then you give it away for nothing.

2) Getting a new phone

When T-Mobile says, "You get a brand new phone but the payments stay the same", they are drawing your attention away from the fact that when you jump, you take out a loan on the new phone for its full price. The payments don't "stay the same". The same as what? The loan you had on the old phone, which, as we've seen, is a separate transaction. So, the fact that the payments "stay the same" doesn't put a dime in your pocket. Ironically, you are the one ensuring that the payments stay the same by putting down a couple of hundred dollars. Oh, wait a minute, I forgot something. T-Mobile charges $10/mo to jump. So the payments actually increase.

What is really happening is the following:

- You pay full price for the new phone, and pay T-Mobile $10/mo for the privilege.

I didn't jump.