The 4 types of phone payments

Right now you may be looking for ways to save money and wonder how to get the best value for your phone. At current in the UK there is 4 types of separate payment system, this guide is going to look at each of the 4 and try and explain their differences.

Pay As You Go (PAYG)
PAYG is a pre-pay system that sees customer buying "credit" that they can spend in a number of ways. A customer pays in advance for their usage and generally they don't get good value however they don't have any commitment and can "top up" when they like.
Top ups can be done online, over the phone, at cash points or in a stores such at the networks own stores or in super markets. The best current deals seem to be with Giffgaff who run on the O2 network and have a pricing structure that genuinely challenges deals put on offer with contracts.

SIM only
A SIM only deal sees the customer paying a contract for only the SIM card and are generally 12 months. The value for inclusive minutes, texts and data is generally good though you don't have a great deal of flexibility and the concept seems to be a middle ground between a rolling 1 month deal and a full fledged full priced contract.
SIM only is paid at the end of the month and billed, allowing you to pay in store, over the phone or by direct debit. Current deals under the SIM only banner include paying 3 £15 a month for 600 minutes, 3000 texts and 1GB of internet.

30 Day rolling contract OR 1 month deal

These are effectively the same as a SIM only deal though only for 1 month at a time. These add a level of flexibility to the customer who can cancel the contract by giving just 1 month notice though in return they generally don't offer the same sort of value as a true SIM only deal. Please note some networks will refer to these as "SIM only" though I've felt the need to differentiate the two.
Like SIM only and Contract these are billed after the month for additional usage if you use more than your inclusive allowances. Current deals on a 30 day deal include paying 3 £15 for 300 minutes, 3000 texts and 1GB of internet.

Contract
A contract deal sees a customer sign up to a deal lasting typically 12, 18 or 24 months and the customer pays not only for their allowances of texts, calls and data but also for a phone as well. Typically these are the only way that poorer customers will get a new, up to date handset. These are typically rigid deals and are the most expensive though for many customers they are the best option. These are paid monthly usually by direct debit though you can pay in store.
An example of a current contact deal offered by 3 sees you getting a Sony Ericsson X8 with 300 minutes, 3000 texts and 500MB internet for £15 a month for 24 months. As you can see this is a long term deal and offers little flexibility though you do get to buy the phone outright at the end of the contract.

If you are are the type of phone owner who only needs 50 texts a month and will only make a few short calls you're generally better off getting a cheap PAYG handset however if you wish to get a Samsung Galaxy S2 with out making a £400 down payment to begin with then a contract is the best option. Of course you need to decide on your own which deal best suits you though I hope this guide will help.