As much as Americans love gift cards, many of those pieces of plastic will go partially or entirely unused. Some will be lost or forgotten. Others will simply be ignored because there's not enough money left on the card to bother with.
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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 card.
About 6 percent of the total value of gift cards bought this year will go unused, according to data from research firm TowerGroup, down from a record high of 10 percent in 2007. That drop makes sense in light of a recession that has turned formerly apathetic gift-card recipients into value-hungry consumers anxious 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, research director for bank cards at TowerGroup.
Even with the drop, however, an estimated $5 billion worth of gift cards will be lost to fees and expiration dates or misplaced, shoved in a drawer 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.
Business and breakage
Retailers love when people use gift cards because studies show that most customers spend more in the store than the card is worth. On the other hand, with an estimated $87 billion in cards purchased this year, even a little breakage can make gift cards 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 towards other endeavors.
"Somebody like Wal-Mart may have a billion dollars [in unused gift cards] sitting there," says Dan Horne, a professor of marketing at Providence College in Providence, R.I., and a gift card expert. "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."
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8 ways to make sure you're not 'breakage'
If 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. So here are eight ways to make sure your gift cards -- both the ones you give and the ones you receive -- aren't lost to breakage this year:
1. Corral your cards. Make 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 The Clearing House (ClearingHouseNow.com), in Bethesda, Md. If you have too many to tuck in your wallet, she recommends stowing them in a durable plastic envelope or, for an upgrade, the luxe Card Cubby ($19.99, CardCubby.com), which includes alphabetized tabs and is tiny enough to stow in a purse.
2. Log them online. Register card numbers and PINs online at LeverageCard.com or PlasticJungle.com, where you can track your balances and check expiration dates. You'll also have backup in case you lose your piece of plastic.
3. Read the fine print. The new Credit Card Accountability, Responsibility and Disclosure Act -- better known simply 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 of the law won't go into effect until August 2010. Until then, read the fine print to avoid gifting a card with fees and expiration dates.
4. Calendar it. Set up your e-mail program to send you monthly alert to use your gift cards. Kelley also recommends mentally plotting the errand so you'll be more likely to follow through. "Think in terms of the week or month ahead. 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 it. If 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 -selling sites to get what you really want. Some to try: PlasticJungle.com, SwapaGift.com and GiftCardRescue.com.
6. Give low-end cards. To 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 a McDonald's and a Target on practically every corner, they're simply easier to use. They also offer more value for your card. "If you give a Wal-Mart gift card to your mailman, there are plenty of things to use it on. But you don't give your mailman a Brooks Brothers card," says Riley, because even a $25 card won't get him more than a pair of socks.
7. Rethink general-purpose gift cards. Gift cards from credit card companies can be used anywhere a credit card can, so that makes them the best choice, right? Not necessarily, since these so-called open-loop cards 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 thru" or "good thru" 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 card representative, the date protects you from fraud and lets you use your card with online merchants, but replacing a card after a "valid thru" date may seem like such a hassle that you'll simply toss the card (and your remaining balance).
8. Give again. Instead of letting that last two bucks on a Best Buy or Borders card go to waste, send it off to Atlanta-based nonprofit Gift Card Giver (GiftCardGiver.com), which stockpiles cards then combines them into higher-value gift 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 sitting in their wallets. "They literally started pulling out gift cards from their wallets. Everyone had one." Shinabarger offered to redistribute the unused cards to the needy, and a new nonprofit was born. That makes one thing clear: You can always find better things to do with a gift card than line the pockets of the retailer who sold it.
More from CreditCards.com:
- Buyers' guide to gift cards: 5 questions to ask before buying
- Debit card users now more protected from fraud, study says
- 2009 gift card comparison table