Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

Consumer Archive

Consumer

Fast free tax filing from your friendly IRS

 Permanent link
MADISON, Wis. (2/1/10)--You still have to pay, but at least the government is making it easier to report what you owe. The Internal Revenue Service (IRS), working with selected vendors, is making tax preparation software and electronic filing of the federal tax returns available to most taxpayers at no charge. “Free File is a great choice for either the novice taxpayers who need some assistance or the experienced taxpayers who prefer to do the work themselves. It’s fast; it’s safe; it’s free,” said IRS staffer David R. Williams. Visit IRS.gov/freefile 24 hours a day through April 15 for two basic options:
* Traditional Free File. This software option covers tax preparation, which includes guiding users with questions, doing the math, and entering the results on the proper forms. It also includes free electronic filing of your return and its supporting documents.
The IRS provides Traditional Free File through a partnership with the Free File Alliance LLC, a group of about 20 private sector tax software companies. Each company sets its own eligibility criteria, such as state residency, age, income, or military service. However, an individual or family whose adjusted gross income was $57,000 or less in 2009 will find some tax preparation software they can use. This includes approximately 70% of the nation’s taxpayers, or about 98 million people, according to the IRS. Several companies offer their software in Spanish. Several also offer state tax preparation, although fees may apply. Taxpayers are under no obligation to make any purchases from the software companies.
* Free File Fillable Forms. This option is for taxpayers who are comfortable preparing their own tax returns. Almost everyone is eligible for this service, which provides electronic versions of IRS paper forms. Taxpayers complete the tax forms online and file electronically. The fillable forms perform simple math functions, but do not use the question-and-answer guidance format that the software does. There are no income limits and almost all tax forms are available. The Free File Fillable Forms option does not support state forms or state electronic filing. Traditional Free File can help you identify new tax credits or deductions you might be eligible for, such as new and expanded benefits for energy conservation, new car purchases, college tuition, and first-time homebuyers. If you are eligible for a first-time homebuyer credit, however, you will not be able to e-file because you must attach proof of purchase to your tax return. In that case, you still can use Free File to prepare your tax forms, then print and mail them to the IRS.
Additional benefits from free e-filing with the IRS include:
* Quick acknowledgement--within 48 hours, telling you that the IRS has received and accepted or rejected your return; * Reduced error rate--typically 1%, compared with 20% on average for a paper return; * Fast refund--as few as 10 days when you use direct deposit; * Electronic tax payment scheduling and the ability to apply for an automatic extension of time to file your federal return (IRS Form 4868). For taxpayers who request an extension, Free File will be available through Oct. 15.
For more information about taxes, read “Roth IRA: To Convert or Not to Convert?” in the Home & Family Finance Resource Center.

HandFF Radio takes up credit scores and Roth IRAs

 Permanent link
WASHINGTON (1/29/10)--Sunday's H&FF Radio program reviews the importance of accurate credit reports, converting a traditional individual retirement account (IRA) to a Roth, and fair debt collection. Home & Family Finance airs Sundays at 3 p.m. ET on the Radio America Network. The show also is carried on American Forces Radio Network. The one-hour program devoted to consumer finance issues is brought to you by America's credit unions and their 90 million members, and is presented by CO-OP Network. The Credit Union National Association (CUNA) and Radio America are podcasting Home & Family Finance through iTunes, Podcast Alley, Odeo, and other popular podcast library sites, as well as on Radio America and CUNA's websites. Sunday's show, which you also can hear later via the Internet, features Paul Berry, Washington, D.C., journalist and broadcaster, discussing these topics with special guests:
* "Does Your Credit Score Tell the Truth About You?" John Ulzheimer, president, consumer education, credit.com, describes how inaccurate data on a credit report affects your credit score and can paint an inaccurate picture of your credit risk. * "Converting From a Traditional to a Roth IRA." Dennis Zuehlke, compliance manager, Ascensus IRA Services, Middleton, Wis., reviews the special tax rules applying to 2010 IRA conversions. * "Fair Debt Collection." Thomas Kane, senior attorney, division of financial practices, Federal Trade Commission, Washington, D.C., describes the laws and procedures debt collectors must follow and how to report violations. * "Using Public Transit Saves Individuals $9,242 Annually." Mantill Williams, director, advocacy communications, American Public Transportation Association, Washington, D.C., says giving up one family vehicle saves money and commuting stress.
Home & Family Finance is a resource center for personal finance information at CUNA. The radio show is sponsored by CO-OP Network, the national credit union ATM network; Cabot Creamery Cooperative, maker of award-winning cheddar; Western Corporate FCU (WesCorp) and its member credit unions; and the Defense Credit Union Council and member credit unions, serving those who serve the country worldwide. For more information, read “Tough Times Series: Steer Clear of Credit Counseling Bad Guys,” and view the “Investing in an IRA” and “Build Your Best Credit Score” videos in the Home & Family Finance Resource Center.

Five ways to reduce home heating bills

 Permanent link
SAN FRANCISCO (1/27/10)--Recent reports that wholesale energy costs dropped 0.4% from November to December may sound like good news for consumers (marketwatch.com Jan. 20). December 2009 home heating oil prices, however, averaged more than 28 cents more than prices in December 2008. Current prices, coupled with increased demand due to frigid temperatures, have resulted in heating bills higher than many families can handle (usatoday.com Jan. 10). Here are five easy ways to reduce heating costs:
* Set it and forget it. Set your thermostat in the 60-degree to 65-degree range while you’re away or asleep, and in the 66- to 70-degree range while you’re at home and awake. Turning the heat lower than 60 degrees when you leave and cranking it back up when you return actually makes your system work harder, reduces its efficiency, and costs you more. * Reduce drafts. A small investment in caulk, weather stripping, door sweeps, or insulated outlet covers for drafty areas will block heat from escaping. That can make you more comfortable and save money. * Take shorter showers. The more hot water you use during a shower means more energy use and money down the drain. * Reduce water heater temperature. The higher the temperature, the more energy your water heater uses. Adjust the setting to 120 degrees, which still keeps your dishwasher cleaning effectively, allows for comfortable showers, and saves money. It also helps reduce the danger of hot water scalds. * Cover up. Use a water heater insulation blanket to prevent heat from escaping and help the unit, especially an older electric model, run more efficiently. These are available at your local hardware store.
For more information about energy efficiency, read “Can You Really Offset Energy Use?” in the Home & Family Finance Resource Center.

Roth IRA To Convert or Not to Convert

 Permanent link
NEW YORK (1/25/10)--As of Jan. 1, you have an opportunity to shelter retirement savings from future tax increases. That’s because, as of that date, the usual income limit of $100,000 is lifted. In addition, tax rules let you spread the conversion taxes you’ll owe over two years instead of paying them all at once (Pittsburgh Post Gazette Jan. 13). Those are good reasons to convert your regular Individual Retirement Account (IRA) to a Roth this year, but it might not be the best move for you. Look at the pros and cons. Convert--If you’re young, converting to a Roth is a smart money move. You’ll pay ordinary income taxes at your current tax rate on the money you convert, but consider this:
* A Roth IRA allows tax-free growth and tax-free income distributions at age 59½ or older as long as you have held your Roth account for five years or more. The younger you are, the more time you have to grow your retirement savings tax-free. * The market’s been down and is climbing only fitfully. Most likely your account value is at a low. By converting now, you may pay lower taxes than if you wait. * With looming federal budget deficits, Medicare, and Social Security obligations, there’s a good chance tax rates will increase in the coming years. You’ll be better off paying those taxes now than later. * By converting to a Roth, you avoid the traditional IRA requirement to take yearly minimum distributions starting at age 70 ½. This can leave more for your heirs if you don’t use the money yourself.
If you’re older, a Roth still may make sense:
* A traditional IRA requires you to withdraw starting at age 70 ½, but a Roth doesn’t. The longer you can wait, the more time your money has to accumulate tax-free. * Under current tax laws, converting a traditional IRA to a Roth can reduce the size of your taxable estate. Think: decades of tax-free growth. * If you name your spouse as your Roth beneficiary, and your spouse forgoes withdrawals after you die, those Roth IRA assets keep compounding untaxed for the rest of your spouse’s lifetime. If your spouse names a child as beneficiary, the tax-free compounding goes on.
Maybe not--Young, old, or in between, there are reasons to think twice about converting:
* You will owe taxes now. Do you have enough in savings to cover the tax bill? If not, don’t convert and pay the taxes out of your current IRA. The amount you take out to cover the taxes will lose the chance for tax-free compounding--forever. In addition, if you’re younger than age 59½, you’ll have to pay a penalty to take the money out of your IRA. * If you’re certain your tax bracket will fall in the next few years, it won’t benefit you to convert now. Reconsider converting when your tax bracket falls.

HandFF Radio tackles elder taxes credit cards new habits

 Permanent link
WASHINGTON (1/22/10)--Sunday's H&FF Radio program looks at tax counseling for the elderly, the new credit card rules, how to find the best credit card, and how to prepare to change your behavior. Home & Family Finance airs Sundays at 3 p.m. ET on the Radio America Network. The show also is carried on American Forces Radio Network. The one-hour program devoted to consumer finance issues is brought to you by America's credit unions and their 90 million members, and is presented by CO-OP Network. The Credit Union National Association (CUNA) and Radio America are podcasting Home & Family Finance through iTunes, Podcast Alley, Odeo, and other popular podcast library sites, as well as on Radio America and CUNA's websites. Sunday's show, which you also can hear later via the Internet, features Paul Berry, Washington, D.C., journalist and broadcaster, discussing these topics with special guests:
* “AARP Tax-Aide: Tax Counseling for the Elderly,” with Bonnie Speedy, national director of AARP Tax-Aide and vice president, AARP Foundation, Washington, D.C., covering who can use these services, how taxpayers can find help, and what’s new for 2009 tax filing. * “Five Things You Need to Know About the New Credit Card Rules,” with Gerri Detweiler, credit expert and author, credit.com, Sarasota, Fla., explaining interest rate increases, over-limit fees, kids and credit, new payment rules, and subprime cards. * “Credit Card Connection: Finding the Best Card for Your Needs,” with Ondine Irving, founder creditcardconnection.org and cardanalysissolutions.org, Lake Bluff, Ill. * “Are You Ready for Change?” with Susan Tiffany, CUNA's director, consumer periodicals, Madison, Wis., offering insight on how to successfully change your habits by examining how ready you are for change.
Home & Family Finance is a resource center for personal finance information at CUNA. The radio show is sponsored by CO-OP Network, the national credit union ATM network; Cabot Creamery Cooperative, maker of award-winning cheddar; Western Corporate FCU (WesCorp) and its member credit unions; and the Defense Credit Union Council and member credit unions, serving those who serve the country worldwide. For more information, read “June Financial Fitness Challenge--Power Through Credit Card Debt” and view the “Becoming Creditworthy” video in the Home & Family Finance Resource Center.

New rule meant to keep home values in line

 Permanent link
McLEAN, Va. (1/20/10)--Gone are the days of lenders inflating home values to underwrite loans. Starting Feb. 15, mortgage brokers/lenders no longer will be able to order appraisals on loans insured by the Federal Housing Administration (USA Today Jan. 11). Instead, lenders will turn to third-party appraisal management companies that hire appraisers on contract to do the job. The new rule is supposed to help ensure that lenders don’t pressure appraisers to inflate home sales, but critics argue it could make things worse. The Appraisal Institute and the National Association of Realtors say the change could be harmful to consumers and appraisers alike. Their concern: It could result in appraisers being assigned to unfamiliar areas, resulting in low appraisal values. It also could mean the appraisal process would take longer than before the rule. The trade association of the real estate settlement services industry--The Title/Appraisal Vendor Management Association--argues that third-party appraisers are well-qualified and if appraisals come in low it’s because home prices have fallen. If you’re in the market to buy a house, keep in mind that the appraiser will look at:
* Positives and negatives of property location--How close are schools? Is street traffic heavy? Is there a park nearby? * Convenience of floor plan; * Quality of materials and workmanship that went into building the house; and * Updates and extra features such as a remodeled kitchen or larger garage.
The appraiser also will compare the property you’re looking at with similar properties that sold recently in the neighborhood. To find out more about the appraisal process, read “Appraisers Home In on Value” in the Home & Family Finance Resource Center.

Decreased debt vs. increased savings

 Permanent link
MADISON, Wis. (1/19/10)--If your financial goal is to reduce debt in 2010, you’re in good company. More than 75% of respondents in a National Foundation for Credit Counseling (NFCC) poll selected debt reduction as their No. 1 New Year’s resolution (National Foundation for Credit Counseling Jan. 4). If boosting savings isn’t high on your priority list as well, you could be headed down a slippery financial slope. Without adequate savings, a financial emergency limits your options to borrowing from family or friends, using money allotted for necessities such as rent or mortgage, or charging the unexpected expense to a credit card with an already high balance and interest rate. The NFCC recommends focusing on savings as the key for achieving financial stability. Designating 10% of each paycheck as an automatic deposit in a “rainy day” fund for a year gives you a little more than one month’s income--a good cushion for most emergencies. An already tight budget can make squeezing out an extra 10% a challenge. One way to find hidden money is to track all spending for 30 days. Gather receipts and put items in categories. What’s a necessity? Food, transportation to work, and utility bills all qualify. What costs could you reduce or eliminate? Watching free movies from the library, packing lunch, and carpooling to work may be alternatives. Make it a family activity to determine how much money you can save each month. An adequately funded savings account can provide you and your family with a financial safety net that eliminates the need to make a resolution about debt reduction. It puts you in control of your money.

HandFF Radio covers tax credit loan scams financial checkup

 Permanent link
WASHINGTON (1/15/10)--Sunday's H&FF Radio program examines the Earned Income Tax Credit, loan modification scams, the state of the mortgage foreclosure market and how your financial “temperature” compares with others. Home & Family Finance airs Sundays at 3 p.m. ET on the Radio America Network. The show also is carried on American Forces Radio Network. The one-hour program devoted to consumer finance issues is brought to you by America's credit unions and their 90 million members, and is presented by CO-OP Network. The Credit Union National Association (CUNA) and Radio America are podcasting Home & Family Finance through iTunes, Podcast Alley, Odeo, and other popular podcast library sites, as well as on Radio America and CUNA's websites. Sunday's show, which you also can hear later via the Internet, features Paul Berry, Washington, D.C., journalist and broadcaster, discussing these topics with special guests:
* "Earned Income Tax Credit: The IRS Says, ‘We’re Gonna Give What You Deserve!'" with Eric L. Smith, national spokesman, Internal Revenue Service, Washington, D.C. Smith explains who are eligible to receive the credit, what they may receive, the potential benefit, and how to apply. * "Loan Modification Scams,” with Eileen Fitzgerald, chief operating officer, NeighborWorks America, Washington, D.C. With home foreclosures and unemployment at all-time highs, many consumers are scurrying to modify mortgages to reduce their monthly payments. Fitzgerald discusses how homeowners can spot and avoid the scam artists eager to help troubled borrowers. * "Mortgage Foreclosures: Who’s to Blame; Who’s Being Hurt; What’s Being Done?” with Michael Calhoun, president/chief operating officer, Center for Responsible Lending, Durham, N.C. The Center for Responsible Lending has worked to reform the mortgage business into a fair, responsible and transparent market for sustainable home loans. * "Financially Speaking: Are You OK? Really?” with Pam Krueger, creator, executive producer and co-host, Public Broadcast System’s "MoneyTrack" and former stockbroker, Tiburon, Calif. Krueger challenges listeners to take their financial “temperature” to see how they stack up against the rest of America with debt, saving, and investing.
Home & Family Finance is a resource center for personal finance information at CUNA. The radio show is sponsored by CO-OP Network, the national credit union ATM network; Cabot Creamery Cooperative, maker of award-winning cheddar; Western Corporate FCU (WesCorp) and its member credit unions; and the Defense Credit Union Council and member credit unions, serving those who serve our country worldwide. For more information, read “New Hope and Help for Struggling Homeowners” and view the “Tough Time Series: Refinancing Your Mortgage” and “Getting Tax Records Organized” videos in the Home & Family Finance Resource Center.

Resolve to manage your credit cards better this year

 Permanent link
MADISON, Wis. (1/13/10)--If you’re still looking for New Year’s resolution ideas, you could do a lot worse than to consider your credit card behavior. Under the pressure of job insecurity and widespread unemployment, U.S. consumers have actually reduced their collective credit card debt. The unprecedented decline in credit card balances outstanding has been at least 7.3% per quarter during the past year (Federal Reserve Dec. 7). Total U.S. credit card debt still exceeds $888 billion, however--more than at year-end 2006. New Credit Card Accountability, Responsibility and Disclosure (CARD) Act protections, most of which take effect on Feb., require card issuers to communicate better and disclose rates and other information more clearly. This should make it easier for consumers to monitor what they owe. But, new regulations can’t prevent people from making poor debt management habits. Here are some New Year’s resolution tips for controlling credit card use, courtesy of the Credit Union National Association’s Center for Personal Finance:
* Actively manage your account. Open and examine your credit card statements promptly. Look for unauthorized use, of course, but also look for announcements from the issuer. Under the new rules, you must have 45 days’ notice of a change in your card’s terms, such as an interest rate increase. If you choose to “opt out” of the change, you will no longer be able to add new charges to your card, and will want time to get a replacement while you pay off the old balance. * Keep your credit score healthy. This number between 300 and 850 is a measure of your trustworthiness as a borrower. The higher your score, the easier it is to get a loan and, often, the more favorable the interest rate. The most important ways to maintain and improve your credit score is by paying all your bills on time and not taking on excessive debt. * Watch your card balance-to-limit ratio. It’s OK to occasionally “max out” your credit card for important purchases. But over the long term, try to keep your total credit card debt to a reasonable 10% to 20% of your total credit limit. If the ratio gets much above 20%, and you can handle the payments, ask for a higher limit on your current card or get another one. Don’t add new cards too often, though, and don’t close several unneeded accounts in a short period--either move can lower your credit score. * Understand the overlimit option. The CARD Act allows you to choose what you want your card issuer to do when you try to go over your card’s credit limit. If you “opt in,” you can go over the limit for a fee. If you “opt out,” your attempt to go over the limit will be declined. Of course, if you keep your New Year’s credit card Resolution No. 3, you can opt out and save yourself the money and grief of excessive debt.

Income tax filing tips for January

 Permanent link
NORTH PALM BEACH, Fla. (1/11/10)--Although income tax returns are not due until April 15, you'll want to avoid the rush by filing early. Plus, if you’re getting a refund, you’ll get it all the sooner (Bankrate.com Jan. 5). Here are eight steps to take now:
* Check out Internal Revenue Service (IRS) Schedule M. This is the new tax document you'll use to account for the Making Work Pay credit you got last year in your paychecks. You'll find out whether you're fine or whether you'll lose some of the credit when you file your return. * Get ready for the arrival of records. If you don’t already have a Tax Tickler file, select a single location (even if it’s just a large envelope) to collect your W-2s, statements, and other tax-related documents as they arrive. If you receive records electronically, create a “2009 taxes” folder or subdirectory. * Contribute to an individual retirement account (IRA). Most Americans can contribute $5,000 to a Roth or traditional IRA for 2009 ($6,000 for those age 50 and older) until the tax filing date. * Find your forms. If you file electronically, get your software lined up. If you file by paper, you can get forms from a public library or at IRS.gov. * Decide how you want to do your taxes. Are you a do-it-yourselfer or should you hire a pro? Do you prefer pen and paper or a computer? Now's the time to decide. * Consider electronic filing. If you decide to use your computer to calculate your taxes, consider taking the next step and file electronically. E-filed returns are processed in about half the time of paper ones, according to the IRS. This filing season, taxpayers with adjusted gross income of $57,000 or less in 2009 can file at no cost via the IRS program when it kicks off on Jan. 15. * Use direct deposit. Regardless of whether you file electronically or the old-fashioned paper way, this year have your refund check directly deposited into your credit union account. It’s the fastest way to get your return. * Stay calm. Tax filing makes everyone a little nervous, but when you start early, you have time to get the answers and make sure you're taking full advantage of every tax break for which you're eligible. For more tips, watch the “Getting Tax Records Organized” video in Home & Family Finance Resource Center.

HandFF Radio on kids accounts college peer fin counseling ID theft

 Permanent link
WASHINGTON (1/8/10)--Sunday’s Home & Family Finance (H&FF) Radio program looks at saving accounts for children, how college students are providing financial counseling to fellow students, tips to avoid identity theft, and financial resolutions for 2010. H&FF airs Sundays at 3 p.m. ET on the Radio America Network. The show also is carried on American Forces Radio Network. The one-hour program devoted to consumer finance issues is brought to you by America's credit unions and their 90 million members, and is presented by CO-OP Network. The Credit Union National Association (CUNA) and Radio America are podcasting H&FF through iTunes, Podcast Alley, Odeo, and other popular podcast library sites, as well as on Radio America and CUNA's websites. Sunday’s show, which you also can hear later via the Internet, features Paul Berry, Washington, D.C., journalist and broadcaster, discussing these topics with special guests:
* “Children’s Savings Accounts,” with Reid Cramer, Ph.D., director of the Asset Building Program, New America Foundation, Washington, D.C. Cramer’s work provided analytical support for development of the Aspire Act, a bipartisan proposal to create a savings account for every newborn in America. * “Financial Resolutions for the New Decade,” with Madeleine Greene, accredited financial counselor, author, and retired tenured faculty, University of Maryland (Family and Consumer Science), Barnesville, Md. * “Red to Black College Peer-to-Peer Financial Planning Program,” with Dottie Durband, Ph.D., associate professor, Personal Financial Planning; associate chair, Department of Applied and Professional Studies; and director, Red to Black Program, Texas Tech University, Lubbock. Red to Black is a financial counseling and education program that offers peer-to-peer counseling by students trained to assist fellow students. * “Resolve to Dissolve Identity Theft!” with Jay Foley, executive director, Identity Theft Resource Center (ITRC), San Diego, Calif. ITRC’s top 10 tips minimize a consumers’ risk of identify theft in the new year. * “Your Questions Answered.” Host Paul Berry responds to listener e-mail questions about COBRA health coverage extended, freezing credit, nursing home Medicare coverage, and eating better while saving money.
H&FF is a resource center for personal finance information at CUNA. The radio show is sponsored by CO-OP Network, the national credit union ATM network; Cabot Creamery Cooperative, maker of award-winning cheddar; Western Corporate FCU (WesCorp) and its member credit unions; and the Defense Credit Union Council and member credit unions, serving those who serve the country worldwide. For more information, read “Keep Passwords Strong, Secret, and Safe” and “January Financial Fitness Challenge--The Great Recession is a Teacher,” and view the “How to Use Children’s Wants to Motivate Them to Save” video in the Home & Family Finance Resource Center.

Remodel your homes selling price

 Permanent link
MADISON, Wis. (1/6/10)--With a glut of houses now on the market, if you want to sell your house you have to play it smart. Remodeling to improve your home’s appeal to picky buyers is a tempting choice, but it has always required careful consideration. You don’t want to sink money in a remodeling investment with poor payback prospects when you’re competing in a time of weak demand. The rate at which various home improvement jobs recouped their cost in 2009 varied from a low of 48.1%--for remodeling a home office--to 128.9%--for installing a steel front door, says the National Association of Realtors (NAR.com Dec. 17). So bear in mind that what’s important is not that you remodel, but what you remodel. Here are tips about smart remodeling from the Credit Union National Association’s Center for Personal Finance: Choose your job carefully. Don’t expect to recover all remodeling costs. The steel front door replacement was the only job in the 2009 NAR cost survey that recouped more than 100% of its cost. All other jobs recovered 83% of the cost or less. “Glamour” projects such as a bathroom remodel (61.6% of costs recovered) and sunroom addition (50.7%) logged among the lowest recovery rates. In fact, the very best time to remodel is not when you’re trying to sell your home. It’s when you expect to stay there for a few more years, so that you can enjoy the improvements you’ve paid for. Choose your contractor carefully. If you decide to go ahead, get recommendations from friends and neighbors. Because contractors often specialize, it’s best to talk to people who had work done that is similar to what you’re planning. Of course, when you talk with contractors, you’ll want to ask about the estimated cost, start date, and time to completion. Don’t stop with those obvious questions. Also ask for references--then contact several. Find out about the contractor’s work, both quality and habits. For example, did workers show up on time, clean up the job site each day, and stay in regular touch throughout the project? And most important--as Renee Rewiski, president of the National Association of the Remodeling Industry, told Home & Family Finance Radio--ask references if they would ever hire the contractor again. Choose your lender carefully. Credit unions nationwide regularly offer their members lower rates on loans of all kinds than banks offer their customers. That’s because credit unions are not-for-profit financial cooperatives whose members are owners. Talk to the people at your credit union for details about a home improvement loan for your enjoyment and improved resale value.

Spend it or lose it when it comes to gift cards

 Permanent link
MADISON, Wis. (1/4/10)--Redeemable gift cards are the gifts that keep on giving. To retailers. Over the next year, nearly $5 billion of the money that your well-meaning family members and friends shelled out for gift cards will go unspent, according to TowerGroup, a financial services consulting firm in Boston. In the retail industry, that unspent money is known as "breakage." It occurs when you spend only $22 on a $25 gift card and never get back to tap out the final $3. And while you may not do that, a whole lot of people do. In fact, it happens so often, says The New York Times columnist Ron Lieber (Dec. 12), that Gift Card USA tells companies considering a gift card program: "Experience shows that 5%-15% of gift card values are never redeemed. This fact can pay for your program by itself." Breakage happens when people lose cards or simply neglect to spend the full amount for whatever reason. In fact, Best Buy kept $38 million in breakage in its last fiscal year and Home Depot had $37 million in breakage, the Times reports. Here are tips from the editors of the Credit Union National Association's Home & Family Finance Resource Center and Lieber to ensure you don't provide an unintended give-back to retailers on those gift cards you received over the holidays:
* Put all your gift cards in a single envelope. Note the dollar value so you know how much you have to spend. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 requires clear disclosures about all fees and funds availability, so, for the first time, you won't have to contend with fees for cards that have been inactive for less than a year and they won't expire for five years. * Consider picking out something that costs a bit more than the value of the card. That's so you don't leave a tiny balance on the card that goes unspent, especially if you're the kind of consumer who's going to tuck that card away and never look back at it. The trick here is to get something you need or want and to not go overboard by buying something you can't afford in the first place. * Sell your card if it's from a store you'll never frequent. Of course, you have to anticipate an opportunity cost here. Internet sites like PlasticJungle, GiftCardRescue, and Swapagift will help you, for a fee. * See if you can redeem the card at a retailer’s online store. Most cards allow you to enter the unique card code to redeem a gift card. You can get more mileage this way at post-holiday online sales, especially if there’s a free shipping offer. * Consider your own gift-giving habits. Think about giving an old-fashioned gift in the future: cold, hard cash. As Lieber writes, "You're kidding yourself if you think that loading money onto a plastic card is somehow more polite than slipping money into a paper envelope."