Shop or Save: What to Do With Your Rebate

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A lot of checks for $300 or $600 -- and up to $1,200 in some cases -- will be hitting mailboxes very soon.

As you might imagine, the prospect of millions of consumers with extra money in their pockets has most retailers drooling. We can expect to see plenty of marketing urging us to spend our checks in this store or that one -- Home Depot (NYSE: HD) and Staples (Nasdaq: SPLS) are among the companies looking to grab some rebate money -- but a few retailers have gotten even more creative.

Kroger (NYSE: KR), SUPERVALU (NYSE: SVU), and Sears (Nasdaq: SHLD), for example, are offering to take your check and give you a gift card in exchange, with an extra 10% tacked on. So if you hand over a $600 check, you'd get a gift card worth $660. Even Wal-Mart (NYSE: WMT) plans to get in on the action soon.

I was all set to urge you to save and invest that money. Invested in the stock market and earning the historic average annual return of around 10%, it would double in value in about seven and a half years. In 25 years, it would grow more than 10-fold. (A modest $600 check can turn into an extra $6,000 for your retirement!) But it's hard to argue with getting an extra 10% in merchandise -- especially merchandise you'd be buying anyway, such as groceries.

Still, I can argue against spending it on these gift certificates, at least a little. For one thing, some people will likely lose or forget about the cards, possibly resulting in several hundred dollars down the drain. Studies have shown that gift cards are a bonanza for retailers because consumers leave so much of their value unspent. Also, some people will simply end up spending more, because they're holding a cash-laden card. ("Why yes, I think I will buy this shoe-polishing robot.")

Get the most bang for your rebate bucks by spending it on what you really need to. If you're in debt, help pay off your obligations. If your comfy retirement isn't in the bag, put it toward that. If you're going to buy $300 of groceries and you're good at keeping track of plastic cards, head over to a participating supermarket and grab your 10% bonus.