Today, Cheryl, 30, spends between $800 and $1,000 a month for her household using discounted gift cards. Her favorites are for Target (TGT) and ShopRite, where she can score a 5% discount. She has stopped using cash and admits, "I have started only buying things from big merchants."
Her budgetary finesse doesn't stop there: Cheryl buys her gift cards using an American Express (AMEX) credit card, which gives her 1% back on purchases. Now she is even dabbling in reselling electronics purchased on sale at retailers with discount gift cards, and is making a small profit.
At this point, practically the only things she doesn't use her gift cards for are rent, utilities and daycare. And even that could change soon.
Pay Your Bills With Gift Cards?
ChargeSmart.com, which is partnered with the gift card site PlasticJungle.com, is gearing up to launch a new feature allowing consumers to apply gift card balances, up to 92% of the value, toward bills, such as utilities. The rapid growth of gift cards into secondary markets, and now bill paying, underscore just how prevalent they have become as alternative tender.
Peter Saslow, 29, of Clifton Park, N.J., took another route to pay some bills. Last fall, he had to cancel last-minute a trip from Philadelphia to San Francisco to take care of a family member and was left with an two unused airline tickets. After much haggling with the airlines, he got a $1,000 credit. Out of trip mode, matters worsened, and he lost his job soon after. However, through CardCash.com, Peter was able to sell the credit for $850, which he used to pay his rent.
$90 Billion Spent on Cards, But Billions Go Unspent
Gift cards, on which Americans spend an estimated $90 billion for merchant-issued "closed-loop" cards, have boomed in the last few years. Of the billions spent on the cards, between 10% and 19% goes unused each year -- what the retail industry calls breakage -- according to the National Retail Federation. That has driven the growth of a robust secondary market for buying and selling unused cards.
A host of marketplace sites rival each other to help consumers cash in on that unspent money, and sell the cards at a discount while grabbing a small percentage of each transaction along the way. GiftCardAdvocate.org lists many of the marketplaces on its site. For charitably-minded card holders, DonateMyCard.com, allows card holders to give the balance to a charity of their choice.
Within gift card marketplace sites, discounts range from 3% to 30%, depending on the popularity of the retailer the higher the discount. Gas cards tend to have the smallest discount, while hard-to-unload cards for regional retailers can push discounts to 30% or more. "The transaction percentage is determined by how highly sought-after the cards are," says Elliot Klier from CardCash.com.
Five Tips for Using Gift Cards
New credit card laws that went into effect last year as part of the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) restricts the fees gift card issuers can charge for 12 months, and extends card expiration until five years after purchase.
1. Watch the overspending: The vast majority of gift card users spend more than the value of the card when shopping in a store, which is one reason retailers like gift cards so much.
2. Treat the card like cash: If your card is lost or stolen, report it to the issuer immediately. You may not recover any of the value that was on the card: Some issuers will not replace cards that are lost or stolen, but other issuers will, for a fee. You may need to show proof of purchase and the ID number on the card. Most issuers have toll-free telephone numbers you can call to report a lost or stolen card.
3. Online buyers beware: There are many sites offering discounted gift cards. If you're in the market to buy or sell a card, choose one that has a reputable track record and history of consumer satisfaction.
4. Read the fine print: According to new laws under the CARD Act, the expiration date of a card must be clearly disclosed on the card, and fees must be clearly disclosed on the card or its packaging.
5. Use it before you lose it: Before you buy a gift card consider the financial condition of the store or restaurant. Some companies may honor or transfer a credit or card if they go bust, but others won't -- and you may lose the value of your card.
Catherine New is a staff writer with DailyFinance.com. You can reach her here.
Get info on stocks mentioned in this article: