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Five Reasons to Avoid Gift Cards This Holiday

If you’re thinking about giving gift cards for the holidays, it may be worthwhile to look at the findings of a recent poll by Consumer Reports on holiday shopping. A couple of facts jumped off the page:

1) Most people don’t want them: While 46 percent of people plan on buying gift cards, only 15 percent said they want to receive them as gifts.

2) A quarter of people haven’t used the ones they got last December: During the 2008 holidays, about half of adults received a gift card, but one in four hadn’t redeemed at least one of the cards as of last month.

3) They encourage overspending: Sixty-five percent of adults who received a gift card in 2008 typically spend more than the value of the card, up from 58 percent in 2007.

4) Store-specific cards may limit gift choices: Forty-one percent of those who have unused gift cards from last year said that they hadn’t found anything they wanted to buy.

5) Many cards carry fees: Consumers may have to pay an upfront fee to purchase  a card, but there are also monthly “inactivity” fees that can slash the value of the card if the recipient doesn’t use it within a specific time frame.

This will be less of a concern next year when The Credit Card Act of 2009 goes into full effect. It prohibits gift cards issued by banks or retailers from expiring for five years; and bans inactivity fees for the first 12 months. Any fees must be fully disclosed. Here’s a PDF of the entire Act - the gift card provision is Section 401.

But the Act won’t cover cards purchased this holiday season. So if you go ahead with a gift card gift, check out these two resources: A new guide from the Consumer Federation or America; and Bankrate’s study on the best deals.

A final fact that blew my mind from the Consumer Reports study: Six percent of Americans–some 13.5 million consumers–continue to carry debt from last winter’s holiday season. For those folks, it’s time to stop shopping and switch to gifts that don’t cost money. Check out this list of low- and no-cost gift ideas from the blog Get Rich Slowly.

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