Gift Cards: The Advantages and Disadvantages

by: Pete Glocker

Everyone loves receiving and giving gift cards for special occasions. They reduce the stress of worrying if the recipient will like those jeans or shirt you bought them. They eliminate the fake smile and the "I can always use a new pair of jeans" routine from the person getting the gift. However, beware of the risks and hidden cost while using your gift card.

Consumer Advantages

Every year, gift cards are increasing in popularity. Generally, there are three different cards: store-specific gift cards, restaurant gift cards and general-purpose gift cards. Store-specific gift cards are meant to be used at the particular store and usually come with less hidden fees. Some stores like Old Navy and Banana Republic have became partners and allow their customers to use the gift card at either store. Restaurant gift cards are very similar to store-specific gift cards. They allow you to go and enjoy a nice dinner as a gift. Just make sure you tip the server the same percentage as you would if you were paying the total bill. General-purpose gift cards give the consumer a broader range on where to use the card. These types of cards are typically Visa, MasterCard or American Express and can be used anywhere those major credit cards are accepted. The flexibility is the main benefit of using the general-purpose card. You can fill up your gas tank, go out to eat, buy concert tickets or what ever else you want to do with it.

Consumer Disadvantages

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 from $5.95 to $10. If you order the card online or by phone you will be charged a $4.95 to $8.95 shipping and handling fee and a $3.95 to $11.95 service fee. 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 period of time, a $2 to $3 monthly fee kicks in.

If your gift card is lost or stolen, good luck! Some retailers will not replace a missing gift card. Other retailers such as Macy's and Bloomingdales are more easygoing 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 will re-issue a new one for a $5.95 to $10 fee.

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

Retailers

According to the Retailers Just Love Them article on CBC News Online, the sales of gift cards have exploded from $1 billion in 1995 to an expected $70 billion in 2006 in the United States. As of 2004, 68 percent of all major retailers offer some sort of a gift card. The number is probably even greater now that it is 2006. Coffee giant, Starbucks, has estimated that 10 percent of all their sales come from gift cards.

Another reason retailers love gift cards is consumers will pay less attention to sales and they tend to spend more than what they have on the card. Retailers notice that consumers will spend the whole amount on the card and have a small balance of $2 or $3 left on it. Chances are, shoppers will never use the card again and this works to the retailer's advantage.

One more advantage to retailers is instead of having just the holiday rush and then being prepared for holiday returns, they actually get a double rush. Since consumers give gift cards as holiday presents, the gift card holder will usually rush straight to the mall after the holidays to spend their cards. This results in a major cut-down in returned merchandise.

There are a few disadvantages for retailers. Gift cards can cost the retailer for 50 cents to $3 per card, depending on how many are ordered. There are also implementation costs of up to $50,000. Implementation costs cover all start up fees related to producing and tracking of gift cards.

Gift Card Exchanging

Recently, Internet businesses have created web sites allowing people to sell or swap unwanted gift cards. EBay got involved in this idea and now has more than 7,500 gift cards listed for sale or auction. This can be a good idea if you receive a gift card to a particular store and you do not like anything in that store. You can exchange these cards on these sites for other cards or even cash. Sites such as SwapAGift.com and CardAvenue.com are good sites that offer this service. On CardAvenue.com, you can even buy gift cards at a discounted rate. For example, you may be able to buy a $25 Office Depot card for $17; that is another way of saving.

Copyright 2006 Debt Management Credit Counseling Corp.

About The Author
Pete Glocker is employed in the Education and Charitable Services Department at Debt Management Credit Counseling Corp. ('DMCC'), a 501c(3) non-profit charitable organization located in Boca Raton, Florida. Pete graduated from Florida Atlantic University with a BA in Multimedia Journalism and was a web producer Intern for Tribune Interactive products http://Sun-Sentinel.com and http://SouthFlorida.com. DMCC provides free financial education, personal budget counseling, and debt management plans to consumers across the United States. Debt management plans offered by DMCC help consumers relieve the stress of excessive debt by reducing credit card interest rates, consolidating and lowering monthly payments, and stopping collection calls and late fees. DMCC financial counselors can be reached for free education materials, budget counseling and debt management plan quotes by calling 866-618-DEBT or by visiting http://www.dmcccorp.org. Pete Glocker can be reached by email at pete@dmcccorp.org.

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