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For cheap phone calls, Skype's the limit

"Today" financial editor Jean Chatzky shares the scoop on some new technology that can help take the bite out of your long distance bills.

If your son or daughter just headed off to college, or you're thinking about starting a new job halfway around the world, you no longer have to helplessly watch your long distance phone bill skyrocket.

And no, it's not just that wireless minutes have gotten cheaper (which, incidentally, they have). It's that a relatively new technology called Skype allows you to talk to your family and friends from anywhere in the world — for free. Skype is only one of many companies offering Voice over Internet Protocol (VoIP), a technology that allows you to make telephone calls using a broadband Internet connection instead of a regular phone line. Others include Time Warner Cable, Cablevision and Vonage.

Internet phone service works a couple of different ways. If you buy it from Verizon or many other providers, you use a regular phone with a tiny adaptor, and a high-speed Internet connection you get from a phone or cable company.

Some VoIP users have saved big bucks. Elena Gonzalez, a 24-year-old from Brooklyn, spent $30 on calling cards the first weekend after she moved to Costa Rica before deciding to use Skype. She said it has saved her hundreds of dollars in the eight months since. "My dad now lives in Guatemala and we're able to talk for as long as we want, for free," she said. "I don't have to worry about finding a good calling card."

How does VoIP actually work? Most users sit and talk in front of the computer either through a headset or into a microphone. But there are newer wireless options, too. Skype recently released a new $250 WiFi phone that allows consumers to make calls over a wireless network without being tied to a computer. "So if you are in a public place with access to WiFi, you can talk without your computer," said Don Albert, the North America general manager for Skype.

Sound interesting? Here's what you need to know to get started:

Step one: Download the software and set up an account at You must have a broadband Internet connection for Skype to work. So if you are still in the dial up age, you may need to switch.

It's important to note that talking isn't free unless both parties have Skype. Once both the dialer and the recipient have downloaded the software and set up accounts, you can talk free of charge for domestic and international destinations. (Note: Right now Skype is running a promotion where users can call any landline or cell phone in the United States or Canada for no charge. That ends Jan. 1).

Step two: Understand the extras. As with most free lunches these days, they get you on coffee and dessert. But, in this case, even coffee and dessert are pretty cheap. For $38 a year Skype users can also purchase a phone number with an area code they choose, which can allow their friends and family to call them for free. This can be very convenient. For instance, if you're planning on moving away, you can get a Skype phone number with your old area code so friends and family can call you inexpensively.

If you will be moving frequently for the next few years, rather than constantly changing your phone number, you can keep the same Skype phone number in every different location you live in just as you can with a wireless number. Voice-mail is available as well.

Step three: Plan for emergencies. VoIP services including Skype do not allow users to call 911. What this means, Albert explained is that: "This should not be a replacement for a landline."

Finally, understand your options. Skype is only one of many VoIP service providers. Other companies such as Yahoo, Google and Microsoft (through MSN) offer some of the similar features as Skype, though costs vary. And telephone and cable companies often bundle VoIP with these other services.

The trick is that no company offers exactly the same features as the others, so you have to comparison shop to figure out what works best for you.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .