I actually started writing this guide for a friend, but decided to post here as well. This is for anyone considering buying a used phone from somewhere like Craigslist, Amazon, Ebay, etc.
I worked for a cell phone company for a little over two years. If you're going to buy a phone from a source other than your carrier, there are a few important things to pay attention to.
1. Is the ESN clean? If the phone is marked as lost/stolen in a carrier's system, you won't be able to activate it. In fact, some carriers will confiscate the phone because it is considered stolen property. If you purchase from Craigslist, I often advise people to meet the seller AT the phone store during business hours. That way a rep can look over the phone, check for anything amiss AND verify the ESN is clean before any money changes hands.
2. How close to the original factory state is it? In other words, has the software been altered? If a phone is rooted, some carriers will not activate it. At the very least, they may activate it but they will not service it. Some carriers have the ability to flash the original software back onto the phone, but may not offer you this option. Be sure to ask. Also, check to see if there is a SIM card. If so, make sure it is the one that actually goes with the phone. Most carriers can order you a new one if necessary.
3. Is there any damage to the phone? Scratches and nicks usually aren't a big deal, but if a phone has water damage it may work for a day, a year, or not at all. Don't be fooled into thinking that a phone doesn't have liquid damage just because the moisture indicator hasn't been triggered. (And be wary if it doesn't have one at all...this means it's been removed.) When you shake the phone, can you hear any loose parts rattling around inside? This could be due to being dropped or mishandled. If the screen is cracked, be careful. Some phones will continue to function with a cracked screen, but some will not work at all. Verify this before purchasing any phone with a damaged screen. If you choose to buy a phone with a cracked screen, you might consider putting a screen protector on it. This seems pointless, but what it will do, especially in cases of badly shattered phones, is keep dirt, lint and moisture from getting inside the cracks and widening them (eventually to the point where the screen may stop working). It will also keep you from getting glass shards in your fingers.
All that being said, buying an off contract phone can be a great deal. It may be cheaper and can allow you to get something new without having to resign a contract. Hope this info helps. Happy shopping!