Spend it or lose it when it comes to gift cards

MADISON, Wis. (1/4/10)--Redeemable gift cards are the gifts that keep on giving. To retailers.

Over the next year, nearly $5 billion of the money that your well-meaning family members and friends shelled out for gift cards will go unspent, according to TowerGroup, a financial services consulting firm in Boston.

In the retail industry, that unspent money is known as "breakage." It occurs when you spend only $22 on a $25 gift card and never get back to tap out the final $3. And while you may not do that, a whole lot of people do. In fact, it happens so often, says The New York Times columnist Ron Lieber (Dec. 12), that Gift Card USA tells companies considering a gift card program: "Experience shows that 5%-15% of gift card values are never redeemed. This fact can pay for your program by itself."

Breakage happens when people lose cards or simply neglect to spend the full amount for whatever reason. In fact, Best Buy kept $38 million in breakage in its last fiscal year and Home Depot had $37 million in breakage, the Times reports.

Here are tips from the editors of the Credit Union National Association's Home & Family Finance Resource Center and Lieber to ensure you don't provide an unintended give-back to retailers on those gift cards you received over the holidays:

Put all your gift cards in a single envelope. Note the dollar value so you know how much you have to spend. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 requires clear disclosures about all fees and funds availability, so, for the first time, you won't have to contend with fees for cards that have been inactive for less than a year and they won't expire for five years.

Consider picking out something that costs a bit more than the value of the card. That's so you don't leave a tiny balance on the card that goes unspent, especially if you're the kind of consumer who's going to tuck that card away and never look back at it. The trick here is to get something you need or want and to not go overboard by buying something you can't afford in the first place.

Sell your card if it's from a store you'll never frequent. Of course, you have to anticipate an opportunity cost here. Internet sites like PlasticJungle, GiftCardRescue, and Swapagift will help you, for a fee.

See if you can redeem the card at a retailer's online store. Most cards allow you to enter the unique card code to redeem a gift card. You can get more mileage this way at post-holiday online sales, especially if there's a free shipping offer.

Consider your own gift-giving habits. Think about giving an old-fashioned gift in the future: cold, hard cash. As Lieber writes, "You're kidding yourself if you think that loading money onto a plastic card is somehow more polite than slipping money into a paper envelope."