Gift cards: advantages and disadvantages

Everyone loves receiving and giving gift cards for special occasions. They reduce the stress of worrying if the recipient will like those jeans or the shirt they bought you. They eliminate the fake smile and the “I can always wear a new pair of jeans” routine of the person receiving the gift. However, beware of risks and hidden costs when using your gift card.

Advantages for the consumer

Every year, gift cards are becoming more and more popular. Generally, there are three different cards: store-specific gift cards, restaurant gift cards, and general-purpose gift cards. Store-specific gift cards are designed to be used at the particular store and generally have less hidden fees. Some stores like Old Navy and Banana Republic have partnered and allow their customers to use the gift card at any of the stores. Restaurant gift cards are very similar to store-specific gift cards. They allow you to go enjoy a nice dinner as a gift. Just be sure to give the waiter the same percentage you would if you were paying the full bill. General purpose gift cards provide the consumer with a broader range of where to use the card. These types of cards are usually Visa, MasterCard or American Express and can be used anywhere major credit cards are accepted. Flexibility is the main benefit of using the general purpose card. You can fill your gas tank, go out to eat, buy concert tickets or whatever you want to do with it.

Disadvantages of the consumer

Many general purpose cards come loaded with fees. According to The Lowdown on Gift Cards article on Bankrate.com, some gift card programs will issue you another card if your card expires. These replacement cards will cost you between $ 5.95 and $ 10. If you order the card online or by phone, you will be charged a shipping and handling fee of $ 4.95 to $ 8.95 and a service fee of $ 3.95 to $ 11.95. Some gift cards will charge you a monthly maintenance fee if you still have a balance on your card after six months or a year. If you still have a balance after this time period, a monthly fee of $ 2 to $ 3 will apply.

If your gift card is lost or stolen, good luck! Some retailers will not replace a missing gift card. Other retailers like Macy’s and Bloomingdales are more relaxed and will issue you a new card if you can provide a receipt showing your most recent purchase. Some general purpose cards will cancel the missing card and reissue a new one for a fee of $ 5.95 to $ 10.

So be sure to keep your card in a safe place, use it before it expires and buy it directly from the merchant and you will avoid most of these fees.

Retailers

According to the Retailers Just Love Them article on CBC News Online, gift card sales have soared from $ 1 billion in 1995 to $ 70 billion in 2006 in the United States. In 2004, 68 percent of the major retailers offered some type of gift card. The number is probably even higher now that we are in 2006. The coffee giant, Starbucks, has estimated that 10 percent of all its sales come from gift cards.

Another reason that retailers love gift cards is that consumers pay less attention to sales and tend to spend more than they have on the card. Retailers note that consumers will spend the full amount of the card, leaving a small balance of $ 2 or $ 3. Most likely, shoppers will never use the card again and this benefits the retailer.

One more advantage for retailers is that instead of just having the Christmas rush and then being prepared for the Christmas returns, they actually get a double rush. Since consumers give gift cards as holiday gifts, the gift card holder will generally rush straight to the mall after the holidays to spend their cards. This results in a significant reduction in returned merchandise.

There are some downsides for retailers. Gift cards can cost the retailer between 50 cents and $ 3 per card, depending on how many are requested. There are also implementation costs of up to $ 50,000. The implementation costs cover all start-up fees related to gift card production and tracking.

Gift card exchange

Recently, Internet companies have created websites that allow people to sell or exchange unwanted gift cards. EBay got involved in this idea and now has over 7,500 gift cards listed for sale or auction. This may be a good idea if you receive a gift card at a particular store and you don’t like anything at that store. You can exchange these cards on these sites for other cards or even cash. Sites like SwapAGift.com and CardAvenue.com are good sites that offer this service. At CardAvenue.com, you can even buy discounted gift cards. For example, you can buy a $ 25 Office Depot card for $ 17; that’s another way to save.

Copyright 2006 Debt Management Credit Counseling Corp.