by Joseph Kenny | 11/23/09

Tis’ the season to be jolly and that means many consumers will be purchasing gift cards to brighten up the holidays for cash strapped friends and family. Chances are those same consumers will receive gift cards in their Christmas stockings or from co-workers at office parties.

All in all the predictions are that consumers will spend $50 billion or more on gift cards before the year ends. Naturally sales of these cards spike during traditional gift-giving holidays. Gift cards are prepaid cards purchased from retailers. Whoever receives the card as a gift then uses the card like a charge card up the amount the card was purchased for originally.

In the past these cards would often end up in wallets or dresser drawers after one or no uses only to be discovered much later. Trying to use the gift cards would reveal they had expired or there was an inactivity charge attached to their use. Those practices were eliminated by federal law. Gift cards cannot expire within five years of their purchase now nor can an inactivity fee be charged if the card had been used in the previous 12 months.

As the holiday season approaches, consumers need to be aware that there are two different types of gift cards.

The first kind of gift card is the one purchased for a particular store use. Called “store cards”, they can only be used at the particular stores named on the cards. You can use all or part of the card balance at a time. The problems some consumers are running into in this particular economy is the fact stores are continually going bankrupt or closing leaving the consumer holding a card he or she cannot use.

The moral of that story is to buy gift store cards from the stores most likely to survive the economic downturn.

The second type of gift card is called a “general purpose card”. These are cards that can be used at multiple stores or restaurants. The biggest drawback to these cards is that fees are often charged for their purchase and use. There are initial fees when you buy the card and then additional monthly fees that start when the card is older than 6 months or 12 months in some cases. The monthly fees reduce the balance on the card.

Consumers trying to maintain control of Christmas gift expenditures by purchasing gift cards need can look at sites like GiftCardRescue.com, Plasticjungle.com or eBay’s gift exchange site to find discounted gift cards others are trying to sell or swap. If you receive gift cards, the best advice to take is to use the card as quickly as possible and certainly within 6 months.

Understanding the terms of what you are buying and receiving as gifts is important. Consumers often assume the gift cards have no fees attached. Companies are under pressure to eliminate the inactivity fees and American Express is one of the first to do so. Chances are other companies will follow suit, but there are plenty of gift cards with fees currently in place that can eat up the card balance when the card is not used for many months.

On other words: Treat gift cards like credit cards and read the fine print.