Can using gift cards help you stick to a budget?

Gift card display  rackThe holiday shopping season is drawing near, and if you're like many Americans, you may be wondering where to find the discipline to stay within your budget. Here's a new idea for you: Try using gift cards. You pay for them up front and there's no interest or late fees to pay, unlike credit cards. In fact, you don't need to wait for the holidays; gift cards could help you budget for a big expense like a vacation or a home-improvement project.

But while gift cards might help you establish a greater degree of control over your holiday spending, there are a few things you should keep in mind to stay on track, says Ruth Susswein, deputy director of national priorities for watchdog group Consumer Action. "It's not a bad idea if it helps you stick to a spending limit," Susswein says, although she notes that the people who really need financial discipline might still be tempted to whip out a credit card if their spending goes over the pre-set amount on the card.

There can also be an issue with the cards themselves, Susswein warns. "One thing I would caution is the cards with the most flexibility may cost something to buy and you may not want to waste your limited funds on purchasing the gift card," she said. While most chain retailers don't charge anything beyond the amount that's loaded on the card, the drawback is that you can only use the card at that chain or occasionally at one of its sister brands. If you want a go-anywhere card, you'll generally have to pay for it, and those cards can also hit you with fees.

Furthermore, Susswein points out, gift cards are less secure than their credit or debit counterparts in the sense that if you lose a gift card, it's just like losing cash: It's gone forever. If you plan to purchase gift cards to help you stick to a budget, do your research first so you're informed about any limitations, caveats or fees imposed by the seller.

One final point: Many rewards cards out there will let you cash in your points or miles for gift cards. Susswein advises against this, pointing out that because of the cards' various conversion rates, you almost always get a better bang for your buck if you take an available cash-back option. So instead of using $100 worth of points to purchase a gift card, she says, have those points applied as a statement credit, then take the cash and use it to buy a gift card at a retail store.
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