Here is how you could save a few hundred dollars per year on your home phone bill. It is called MagicJack, a VOIP service that requires a computer (PC or Mac) and an internet connection to provide extremely cheap local and long distance phone calls using a very small device that looks like a disk on key.

To get started you need to sign up for the free trail on the company’s website (or you could buy it at RadioShack). Once you have the device, simply plug it into the PC/Mac USB port and connect a regular phone to the jack on the other side (as in the photo below). Once plugged, your computer will automatically start running the dialer software and take you through a simple sign-up process, where you will be asked to select a phone number (currently they don’t support number portability). That’s it.

The service costs only $20 per year (no taxes, tolls and other hidden fees). The device itself costs $20 so your first payment (after the 30 days free trial is over) will actually be $40, but any subsequent year will be $20. And if you really want a great deal and lock the price for the next few years, you can prepay $60 for 5 years. That’s a pretty sweet alternative to AT&T’s $45/month + tolls and taxes, or Vonage’s $25/month.

Couple of side benefits some people might not be aware of:

1. MagicJack makes your home home phone portable while you are traveling  (assuming you travel with a laptop).
2. MagicJack gives you other features for free including call forwarding, voice mail and voicemail to email as attachment notifications
3. If you have relatives/friends who live abroad (like I do) and you & them spend a decent amount of money every month on international calls, you might want to buy a MagicJack for them. This way they will have a US number and all calls done between them and you will be completely free.

I have been using it for a few weeks now and very happy with the overall experience. The call quality is excellent. Rarely I had any echos problem and disconnects. And when those happen, I simply unplug the device from the USB port, reconnect and restart the dialer program. This “hassle” is worth $550/year in savings.