gift cardAs we start to buy gifts for family and friends, we may decide to go the easy route and get a gift card. But think twice before you choose that route. New studies show gift cards are the most popular presents to give and receive, but the hidden costs may outweigh the convenience of the gift. Be sure you give and use these cards correctly.

"Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic," Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook told me in an email interview. "Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying."

Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year. However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.

"This is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months which drains away the value of the card," says Hardekopf. "You can even use them to start your holiday shopping."

Here are some consumer tips for buying gift cards:
  • Buy a card only from a merchant you trust.
  • Make sure the store is in a good financial position. Many retail stores are near bankruptcy, so if you want to give a gift card from a particular retail chain research its financial health first.
  • Ask about the fees and expiration dates of the card. Read the card's fine print. Many gift cards charge a fee for every transaction, which actually lowers the value of your gift.
Here are tips for using gift cards:

  • If you receive a gift card, use it as soon as possible. Don't put it aside and out of sight. Use it before you lose it or forget about it.
  • Check the terms and conditions of the card you receive. Look for an expiration date or any use fees. You can usually limit those fees by buying one or two large items, rather than several small items.
  • Gift cards from major credit card networks can be used at any retailer that accepts their credit and debit cards.
  • If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be canceled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can't be replaced if they are lost or stolen. They are treated as cash.
  • Keep the card, even after the balance is depleted, until you are sure you won't be returning any of the items that you purchased with it. The retailer may require the card with the return.
  • If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn't resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.
There are important differences between store cards and general purpose cards. Store gift cards are limited to that retailer or family of stores and many have no fees or expiration date. Not all store cards can be used online.

General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.

The CARD Act does provide gift card protections, but these provisions don't go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.

What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.

If you have unused gift cards that you won't use, you can donate the cards to GiftCardGiver.com. That site will distribute the cards to non-profit agencies that can use the cards to help others.

Shop wisely and don't overspend. But if gift cards are the way you plan to go, be sure to read the fine print and know how much your gift card will really cost both you and the person who will get the gift.

Lita Epstein has written more than 25 books including the Complete Idiot's Guide to Improving Your Credit Score.

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