IMHO it largely depends how much you use your mobile for voice (as opposed to data based apps etc)
I am currently on a Telstra contract. For me, I am currently on a $70 plan + $21 MRO. As a very light phone user, this was more about the data for me, and at the time pre-paid was not worth it. Times change - I can now get a prepaid plan that will meet my needs for half the cost.
Although I have the "new phone feeling" as a free extra, there is no way I plan to hand my current phone back for a new one and sign another, more expensive contract for another 2 years. I plan to wait out my contract, buy my next phone outright and switch to a prepaid option.
So my thoughts are that the best way to go would be to buy outright, subsidise it by selling your existing phone, and then you have the freedom to pick a plan that better reflects your usage and may end up costing less.
Just on the topic of Plus models, that is what I currently have, and am rather keen to go back down to a normal size iPhone. I got it thinking the longer battery life and optical stablisation for camera were going of benefit, but after a month I felt the size was just too awkward.