Gift cards are enormously popular gifts during the holidays, at graduations, for birthdays and in the case of many other events.
But gift cards can pose a danger to your wallet and you should use them up as soon as possible.
Gift cards are like hot potatoes in your wallet
Consumers spend nearly $130 billion on gift cards each year, according to business consultancy CEB TowerGroup. That’s billion with a “b”!
But despite their prevalence, money expert Clark Howard says they should be a no-go when you’re looking to give someone a present.
“When you buy a gift card, you take real U.S. money that can be spent anywhere and turn it into money that’s only good at one retailer or restaurant,” Clark says. “If that place goes bust, you are out of luck. That’s why I’ve never liked gift cards, despite how popular they are.”
His distaste for gift cards has led the consumer champ to create an ironclad rule:
If you get a gift card for any occasion, you should treat it like a hot potato: Get it out of your wallet as soon as possible by using it!
Unfortunately, new stats show most people don’t follow this rule. Some 58% percent of people surveyed don’t use their gift card immediately after getting it, according to the newly released 2018 Consumer Gift Card Preferences Study. In some cases, people forget all about their gift cards and never get around to using them.
That’s where the real danger comes in…
Beware of ‘breakage’
Gift card sellers know that many people either forget about their cards entirely or only use a portion of the value. In fact, they thrive on what’s called “breakage” in industry lingo. Simply put, breakage is the amount of money on gift cards that’s paid for but never used.
In today’s volatile retail climate, with retailers closing stores by the thousands, there’s a real risk to you that a restaurant or retailer will go bust before you get a chance to use their gift card. In that case, you’re out the money.
“Someone gave me a gift card for an ice cream parlor for my birthday [one] summer,” Clark recalls. “I never made it to the parlor despite my best intentions. Then, when I was driving by the location in September, the store was completely gone!”
So, here’s your assignment: Gather up the unused gift cards you got this past holiday season and use them now. Go to the store, the restaurant, the spa or wherever. Turn that plastic into a meal or an outfit.
Or, as an alternative, read about how you can turn unwanted gift cards into cash!