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The trade in is for your device. So you get that up front for your device payments.
If you buy a $500 phone then you will pay $100 for it.
The difference will be given to you via either bill credit or prepaid visa.
So if you owe $600 the what you get is $200 as $400 went into your device purchase.
Hey mmattinglyuc! tidbits is definitely on point here. If you complete an "instant" trade-in, processed at a retail store at the time that you activate and purchase your new phone, your up front trade-in value can often be levied towards the up-front costs of your new device. Then, after you complete your port-in and upload your final bill from your previous carrier (with the itemized charge showing the remaining balance due for your device), you'd receive the difference on a card through the mail.
Alternatively, if you complete a "deferred" trade-in because you're ordering online or over the phone, and mail your previous phone in to T-Mobile, you'll receive that portion as a bill credit when the device arrives and is inspected. The rest of the process is the same, and the math still works out the same way - to use the example you provided, if you owe $600, and trade-in value is $400, the remaining $200 is reimbursed via the prepaid card.