Extreme giftcardingAfter her second child was born seven months ago, Cheryl Davidov of Brooklyn, N.Y., received a $50 gift card for the Children's Place. She searched online for others and stumbled into the universe of discount gift cards. "I was instantly hooked," she says.

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.

"You are seeing, more broadly, a rapid expansion in terms of the way people want to have options to pay bills," says ChargeSmart.com CEO Tim Brinkman.

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.

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Gift carding is so interesting to me! Thanks for the article. I've been using a website called More with Less Today a lot lately, and they had an article about getting gift card in exchange for old electronics! http://morewithlesstoday.com/get-gift-cards-for-old-electronics-and-phones/

August 05 2011 at 7:39 PM Report abuse rate up rate down Reply
Kaye Swain

Very interesting article with some interesting ideas for our families, including the elderly parents and relatives. I hadn't realized some gift cards would allow discounts. But another caveat - I once bought a credit card gift card, can't remember which company - for a relative overseas so he could use it anywhere. It wasn't until they rang it up that I realized it COST ME $5 EXTRA. I would never have bought it if I'd caught that, but was late so ended up getting it. So as the Catherine New wisely points out, BE SURE to read the small print. :) . Thanks again for some many great tips.

July 23 2011 at 8:08 AM Report abuse rate up rate down Reply

When I see the word extreme on anything it always reminds me of my years of extreme, irresponsible, careless, out of control reckless spending.

July 19 2011 at 7:21 PM Report abuse rate up rate down Reply

Up here in Maine,our former head of the turnpike authority is now under investigation for ripping the taxpayers off to the tune of hundreds of thousands of dollars,what did he use to do this,why "gift cards" of course. Gift cards are a great idea,just don't let a politian near them though.

July 19 2011 at 4:00 PM Report abuse +1 rate up rate down Reply

Great article and congrats to Cheryl for being so resourceful.

If you plan to buy discount gift cards to give as gifts, be aware that the one you receive isn't always "gift ready." I recently bought a store gift card that looked like it had been carried in someone's wallet for a couple of months (and probably had been). Not to worry. You can buy a gift card with a gift card. So I went to one of the retail store locations and bought a new gift card--with the used gift card.

Another great tip is that some stores are now offering their store credit card benefits to shoppers who pay with a gift card. For example, I recently made purchases at Macy's and JC Penney with gift cards. In both cases, the cashier gave me the discount being offered to customers who paid with store credit cards. That's a GREAT value.

Thanks for sharing the other ideas.

Shelley Hunter (Gift Card Girlfriend)

July 19 2011 at 2:23 AM Report abuse +1 rate up rate down Reply

Fun one. Is like buying discounted cash:) - R

July 18 2011 at 4:22 PM Report abuse rate up rate down Reply