(Guest post by Mike from CreditCardForum.com)
Paper gift certificates have been around forever, but for the most part it wasnâ€™t until the mid-nineties when stores started using plastic gift cards. Of course since that time, their popularity has exploded. However, that doesnâ€™t necessarily mean they are a good idea. Here are five major drawbacks you need to consider.
Drawback #1: Not what many consider a true gift
Letâ€™s be honest here. The whole point of a gift is to demonstrate to a person youâ€™re thinking about them. Itâ€™s not just about the money you put into it, but also the time and effort in searching for and picking out that perfect item. Does a gift card accomplish all those things? Definitely not! In fact, you could even argue the opposite it shows that the recipient isnâ€™t important enough to spend your time and energy on. Instead youâ€™re just grabbing one of these cards during checkout at CVS or the grocery store.
Drawback #2: Not very memorable
Since I was born in the 80â€™s, I grew up in the gift card era and received plenty of them from family for Christmas, birthdays, etc. But you know what? I honestly cannot recall any specific gift cards I received, nor who I received them from. However when it comes to special and unique gifts, the memories stick in my head.
I should point out that Iâ€™m not just talking about those expensive Lego sets, but even small and inexpensive things. For example, when I was 9 or 10 I received a talking greeting card with my grandma and grandpaâ€™s voice on it for Valentineâ€™s Day. Although I unfortunately no longer have it, I can replay in my head exactly what was said and how it was said. It probably cost them less than $10, yet it was much more memorable than any gift card they ever gave me over the years. Donâ€™t you want to give something that will be remembered, not forgotten?
Drawback #3: Not very safe
Even without cash back, airline miles, and other reward programs, the primary reason Iâ€™m such a fan of credit cards is because of the security they offer. If my credit card falls out of my pocket, I can just call up American Express and have them send me a new one. I donâ€™t really have to worry about theft and fraud. But with a gift card, if you lose it youâ€™re in trouble!
Furthermore, many credit cards including AmEx, Visa Signature, and World MasterCard offer built-in protections on eligible items for 90 days from date of purchase (for lost, stolen, and sometimes accidental damage to the item). On the flip side, a gift card offers absolutely none of these protections for your purchases. So if you use one to buy a new pair of shades, only to drop them on the pavement a week laterâ€¦ youâ€™re out of luck.
Drawback #4: Not always money well spent
How many times have you received a card for a store you donâ€™t really like? Or maybe you do like the store, but when you go there to spend it, you canâ€™t find enough stuff you likeâ€¦ so you just end up buying a bunch of junk that will be rarely worn or used (in other words, wasting money). I know that has happened to me a number of times and I bet itâ€™s happened to you before, too.
I donâ€™t know whatâ€™s worse- wasting the funds on the card or not using them at all? Because it has been reported that 40% of recipients donâ€™t spend a cardâ€™s full value. The opposite of that is also unfortunate- not wanting to waste the balance, so you end up spending more than the value (possibly buying stuff you donâ€™t need or really want).
Last but not least, you also have to take into account the fees which may be incurred if the card remains dormant for an extended period of time. In most states, the card issuers can start nickel and diming away your balance whenever they want. Even in states like California that have laws for these cards, itâ€™s still legal to charge fees in many circumstances.
Drawback #5: Not a good idea for gift exchanging
Letâ€™s exchange giftsâ€¦ I will give you a $50 gift card and you will give me a $50 gift card. Does that scenario make any sense whatsoever? Of course not! But when you boil it down, thatâ€™s what exchanging gifts means for many people nowadays. In my opinion itâ€™s even more pointless than exchanging cold hard cash, because at least you will be able to spend cash where and how you want.
To make matters worse, it can be a bit awkward when both parties buy each other cards but theyâ€™re for different denominations. For example, letâ€™s say you and I are friends and you bought me a $100 card for Christmas, but the one I bought you was only for $50. Instead of bolstering our friendship, that will probably lead to feelings of discontent!
Despite my negativity towards them, in certain situations I do believe these cards make sense. For example, if the giving is a one-way street (such as your employer giving employees Christmas gifts) then giving cards to employees probably does make the most sense. In addition, Iâ€™m a huge advocate of using these cards for yourself, if you can buy them under face value. However when it comes to gift exchanging, they are perhaps the worst option out there. Need alternatives? Check out these 14 ideas.
This is a guest article by Mike from CreditCardForum.com, a blog and forum about you guessed itâ€¦ credit cards. From reviewing what he considers to be the top 10 credit cards to giving advice about disputing fraudulent charges, he covers every topic under the sun. With that said, he actually thinks itâ€™s best to avoid using credit cards altogether if they will lead to higher spending and debt.