Did you know it is possible to turn a normal iPod Touch into a working cell phone without doing anything illegal or immoral? You could cut your cell phone costs in half if you use a headset with a microphone and download the right app from the Apple Store. If you prefer to text, you can find a free app that will give you texting ability any time you have wifi service. Using your iPod as a cell phone is not perfect in every way, but it is possible and it can save you a bundle.

iPod vs. iPhone

Right now, Apple is selling the new iPod Touch for as little as $229. On the flip side, AT&T is selling the late model, iPhone 3Gs (the version before the iPhone 4 was released) for just $59. You’re probably asking yourself, “Why?”

Well, it’s because using an iPod Touch to make calls and text is free after you purchase the device. Kyle, the editor of the PerkStreet Blog, pays $110 per month for his service on a 3Gs. With a high-volume plan like his, going the route of the iPod Touch would mean a smaller total investment in just two months. Plus, the new iPod Touch has all the sweet features of the iPhone 4 — from the new high resolution screen to a FaceTime camera. The iPhone 4 has those features, of course, but starts at $199. Remember, these low prices on the phones also lock you into a contract with either AT&T or Verizon…

Finding the Right App

The app store offers a few products that help convert your iPod Touch into a cell phone. The original TextFree application that was released by Pinger allows you to send and receive texts exactly the same way you would with a traditional cell phone. Now Pinger has released TextFree With Voice that allows you to place and receive phone calls from any iPod with a wifi connection. You are still tethered by your signal strength, but it is getting easier to find WiFi hotspots. Once you download the service, you will be able to register your own personal cell phone number that you can give to anyone who may want to give you a call.

Not all of the Service is Free

TextFree With Voice allows free incoming calls to your iPod Touch, but outgoing calls are not free. The company will allow you to buy minutes — 1,100 minutes can be purchased for $1.99 – so that you can make calls from your phone. You can also earn free talk time by downloading other Pinger apps from the app store. Customers who have tried using this voice plan also mention that the call quality is not quite as good as you would get through a regular cell phone line, especially if your wifi connection is slow.

Limited Features

If you need a voicemail service, your iPod Touch may not be the best cell phone solution for you. There is currently no voicemail service available with TextFree Voice. If you really need to catch an important phone call while you are using this service, you could create an account with a web-based operation like K7.net that will route your calls to an e-mail address for you. It is also important to note that you cannot call 911 through your iPod. You may want to keep your old phone for emergencies, even if it doesn’t have service. The FCC requires that all cell phones maintain the ability to dial 911, whether they have active service plans or not.

Not for Everyone

Converting an iPod Touch into an iPhone isn’t ideal. It’s certainly not for everyone. But if you typically make calls from a location where you have WiFi access, it could save you a bunch. For example, if you have a middle school student, this could be a great alternative to investing in an iPhone. Your son or daughter will be able to have his or her own “phone” and phone number to call friends from home. Since cell phone use is generally prohibited at school, this could make a lot of sense. Of course, if there’s no WiFi, their “phone” doesn’t work. You’ll have to be the judge of whether or not this makes sense for your family. We just wanted you to know it was do-able!

What do you think? Good idea or bad idea? Let us know below!

Jessica Bosari is the Site Manager and Editor for Billeater, a blog with Money-saving tips to lower your bills. When she’s not gathering money-saving tips, Jessica is feeding her geeky side with sci-fi movies, tech gadgets, useful apps and productivity tricks, just to keep things interesting. Like all the contributing columnists at PerkStreet, she’s a customer and a personal finance pro.

Are you a personal finance writer who could benefit from being a regular guest contributor to the PerkStreet Blog like Jessica is? Email the editor at kyle.psaty[at]perkstreet[dot]com

If you are considering an iPhone, you might want to look at getting a PerkStreet Financial Debit Card to accompany it! The average American family could earn $600 per year by switching to PerkStreet. That is enough money to offset a serious smartphone bill!