NEW YORK (MainStreet) — The U.S. gift card market is valued at $126 billion, up from only $19 billion in 1999, according to data from CardHub.com. That's estimated to climb to $138 billion next year, or about the annual gross domestic product of New Zealand.

But there's a glitch in gift card paradise: A surprising percentage of gift cards go unused. Make no mistake, when you lose or otherwise don't use a gift card, that's a "gift" that goes right back to retailers and state tax coffers.

About $41 billion worth of gift cards went unused from 2005 to 2011, by some accounting, with another $2 billion unredeemed in 2012.

To keep those billions from going right back into the pockets of retailers, consumers need to get smart and go digital with their gift cards, especially with holiday giving.

Electronic gift cards are already growing in popularity. According to Bankrate.com, 59% of gift cards are now available in digital form, up 18% from 2010.

Millennials, in particular, are a natural for e-gift cards, as they are the demographic most likely to lose their gift cards, according to Bankrate. All told, 40% of Americans between the ages of 18 and 29 report losing a gift card. But that's also an age group that should benefit from gift cards now being widely available through mobile apps and email downloads, where "they're hard to lose," Bankrate says.

In fact, "there are lots of reasons why electronic gift cards appeal to customers," says Jeanine Skowronski, a credit card analyst at Bankrate.

Skowronski gives a little more detail on reasons consumers, especially younger ones, are turning to e-gift cards:

  • They're a quick fix for anyone who needs a gift on the fly.
  • Unlike their plastic counterparts, they don't take up space in your wallet.
  • Though it may seem counterintuitive, a digital gift card can be easily personalized. Most retailers allow e-gift card buyers to customize their cards in many ways, including as gift notes and payment methods.

Specialist sites such as Giftcards.com are a good place to get started buying digital gift cards from major retailers. Many retailers also sell and send e-cards, including Starbucks, which allows customers to email cards.

If you're prone to losing your gift cards, going digital could be the way to go. Your wallet will be lighter, your card's value is better protected, and they're easy to send and receive.

By Brian O'Connell for MainStreet