As much as Americans love gift cards, many of those pieces of plastic will go partly or entirely unused. Some will be lost or forgotten. Others will simply be ignored because there's not enough money left on them to bother with.
That unused value -- known in industry parlance as "spillage" or "breakage" -- is par for the course, and it means big profits for the gift card industry. But if you follow a few simple steps, you can avoid becoming breakage and get the most out of your cards.
Nearly 6% of the total value of gift cards bought this year will go unused, according to data from research company TowerGroup, down from a record high of 10% in 2007. That drop makes sense in light of a recession that has turned formerly apathetic card recipients into value-hungry consumers eager to wring every last cent from a Target card.
"One driver behind the drop is that people understand that 'Even though there's only $2.12 on my gift card, I've got to find a way to use it,'" says Brian Riley, TowerGroup's research director for bank cards.
Even with the drop, however, an estimated $5 billion worth of gift cards will be lost to fees and expiration dates or will be misplaced, shoved into drawers or otherwise neglected this year. That's a huge amount of money that consumers won't be able to use toward a new stuffed animal, bicycle or Wii.
A great deal -- for retailersRetailers love it when people use gift cards, because studies indicate that most customers spend more in the stores than the cards are worth. On the other hand, with an estimated $87 billion in cards purchased this year, even a little breakage can make them very profitable and can boost a company's bottom line by millions of dollars. Those profits make it feasible for retailers to make some consumer-friendly moves, such as selling gift cards at a discount, but most of the money goes toward other endeavors.
"Somebody like Wal-Mart may have a billion dollars (in unused gift card funds) sitting there," says Dan Horne, a professor of marketing at Providence College in Providence, R.I., who studies the gift card industry. "Wal-Mart could go out and build 30 new superstores without borrowing a penny. They know those gift cards will come in eventually, but for now, they have the use of that money."
8 ways to avoid being breakageIf you don't want "eventually" to become "never," take steps to prevent it and to avoid becoming breakage. The longer you let a card sit there, the less likely you are to use it.
Here are eight ways to make sure your gift cards -- both the ones you give and the ones you receive -- aren't wasted this year:
1. Corral your cardsMake sure you can always find cards when you need them by putting them in the same place, says Jackie Kelley, a professional organizer and owner of Clearing House in Bethesda, Md.
If you have too many to tuck into your wallet, she recommends stowing them in a durable plastic envelope or, for an upgrade, a Card Cubby, which includes alphabetized tabs and is tiny enough to stow in a purse.
2. Log them onlineRegister card numbers and PINs at Leverage or Plastic Jungle, where you can track your balances and check expiration dates.
You'll also have a backup in case you lose your piece of plastic.
3. Read the fine printThe new Credit Card Accountability, Responsibility and Disclosure Act -- better known as the Credit CARD Act -- prohibits gift card inactivity fees for the first year and extends expiration dates to five years from activation, so consumers have more time to use cards before their values start slipping away.
But that provision won't go into effect until August 2010. Until then, read the fine print to avoid giving a card with fees and expiration dates.
4. Calendar itSet up your e-mail program to send you a monthly alert to use your gift cards. Kelley also recommends mentally plotting errands so you'll be more likely to follow through.
"Think in terms of the week or month ahead," Kelley says. "When will you be near the store? What items do you need there? Is there a gift you need for someone else? You are more likely to use the card if you know what you want ahead of time and can get in and out quickly."
5. Trade itIf you get a card you know you won't use -- a Hot Topic gift certificate, for instance, when you're more of an L.L. Bean type -- use one of the many card-swapping and card-selling sites to get what you really want.
6. Give low-end cardsTo make sure your gift card doesn't languish in someone else's wallet, think Wal-Mart and Wendy's instead of Nordstrom and Saks. According to TowerGroup, practical gift cards, such as those for fast-food chains and discount retailers, are used faster than cards to fine-dining establishments and pricey department stores.
That's because with so many McDonald's and Target stores around, their cards are simply easier to use. They also offer more value.
7. Rethink general-purpose gift cardsGift cards from credit card companies can be used anywhere a credit card can, so that makes them the best choice, right? Not necessarily, as these so-called open-loop cards are also more likely to come with startup fees and monthly inactivity fees that chip away at your balance.
To make matters more complicated, many of these gift cards include a "valid through" or "good through" date stamped on the front. Hit that date and your balance won't expire, but you'll have to call customer service for a replacement card.
According to a Discover representative, the date protects you from fraud and lets you use your card with online merchants. But replacing a card after a "valid through" date might seem like such a hassle that you'll simply toss the card (and your remaining balance).
8. Give againInstead of letting the last $2 on a Best Buy or Borders card go to waste, send it off to the Atlanta nonprofit Gift Card Giver, which stockpiles cards and then combines them into higher-value cards that are donated to the needy. Founder Jeff Shinabarger got the idea when he asked a group of acquaintances how many had unused gift cards.
"They literally started pulling out gift cards from their wallets," he says. "Everyone had one."
This article was reported by Melody Warnick for CreditCards.com.
Published Dec. 29, 2009