People who are working to avoid or get out of credit card debt know that plastic isn’t a big deal, and cash is king. If you spend only the money in your wallet, you cannot fall into debt trouble. For those who believe that living without a card is unrealistic, using a debit card can provide some protection against overspending – as long as you have not opted into overdraft coverage.
But some people are choosing to use a third option – gift cards. Gift cards gained some additional respect in March, when the Federal Reserve passed new laws to protect consumer spending on them. The new rules state that consumers cannot be charged fees if they have used a gift card within 12 months. Also, gift cards issued after Aug. 22, 2010, cannot expire in less than five years.
With these new protections, gift cards can be a good option for those looking to stretch their budgets.
1.) Redeem rewards points for gifts
If you find yourself in some debt, you might have some rewards ‘points’. Converting these points into gift cards to give someone or to spend on yourself can keep you from reaching into your bank account. Log into your your credit card rewards website to find out if you can convert rewards into cash or gift cards. Some credit card companies will double the value of your rewards at specific retailers.
2.) Cash in coins and redeem in gift cards.
Some coin-redemption machines, like those at grocery stores or banks, let you exchange your coins for gift cards. Some even offer a bonus for choosing a gift card instead of a cash voucher.
3.) Stick to your budget.
Gift Cards can be a way to dedicate spending to specific categories, similar to the “envelope” method of budgeting. For example, buy yourself a gift card in the amount on your weekly grocery budget. The money will be gone from your bank account, eliminating the temptation to spend it on something else and possibly rely on credit cards at the checkout. You will stick to your budget and avoid adding debt. Most stores allow shoppers to “reload” gift cards anyway.
4.) Reach a goal.
Some people purchase gift cards for themselves to keep their spending focus on track. For instance, if you want to lose weight, you might purchase gift cards to restaurants where you can get healthy lunches, instead of hitting the fast food place. Again, because you have already allo0cated your spending, you are most likely to stick with your plans.
5.) Save for a cause.
If you know you want to complete a home improvement project in two months, you can estimate how much you would need to save every week. But if it is difficult for you to stick to your goal, instead buy yourself a gift card to the home improvement store in the amount of the weekly savings. Again, you will avoid spending your money elsewhere – and at the end of the allocated time, will have enough funds on gift cards to complete your project without debt.
6.) Prep for vacation.
Whether your vacation is two weeks at Disney world or a weekend road trip to visit relatives, gift cards can help. Consider asking for gift cards to chain restaurants or retailers for holiday or birthday gifts. Then save the cards to offset some of the cost of your vacation. You can dine out or purchase beach toys and sunscreen at your destination – at no cost to you.
7.) Give back
Check if you know a school or organization/charity that participates in a gift card program. Some stores partner with nonprofit organizations to give back a portion of gift card spending. If your store returns 5 percent of gift-card purchases to your school or church, you can buy a gift card, spend what you usually do, and return benefits to the organization, while staying under budget.
As with cash, or even credit cards, you will need to take care not to lose gift cards. But used carefully, gift cards are another way to stick to your spending goals and stay out of debt.