CAUTION: While this post offers a way to buy points and miles at bargain rates, there are serious risks involved in this approach. Before trying this, please review the “Risks” section at the bottom of this post.

Overview

A few days ago I posted step by step instructions for how to meet credit card spend thresholds without breaking a sweat. I showed how to achieve $5000 of credit card spend by buying and liquidating (cashing-in) American Express gift cards for a total cost of $68.40. That post focused on how to qualify for sign-up bonuses. This post, on the other hand, will show how to use the same trick to buy miles cheaply. When you buy and liquidate $5000 worth of gift cards, you will earn 5000 points or miles simply by using a travel rewards credit card. Why is this significant? Well, it means that, with this method, it will cost you $68.40 to get 5000 points or miles. That works out to 1.37 cents per mile. Considering that many reward program points are worth at least 1.5 cents each, that’s a pretty good deal! But you can do even better. Keep reading, and I’ll show you how to buy points and miles for .82 cents each!

The secret

The secret behind this hack is to find credit cards that offer big bonuses when you meet certain spend thresholds. By buying and liquidating gift cards, you can meet those spend thresholds and earn even more miles and points. For example, there are several credit cards that offer 10,000 bonus miles once you reach $25,000 of spending in a year, and some that offer even better bonuses. For a nearly complete list of such cards, see NerdWallet’s blog post “Which credit cards give bonuses to big spenders“.

Planning

This is not a quick and easy hack. It requires long term planning and follow-through to make it work. Credit card spend thresholds usually need to be met within a calendar year, so your best bet is to begin preparing prior to a new calendar year. You may need to sign up for new credit cards if you don’t already have one with a big bonus for high spend. You will also need to sign up for the Big Crumbs shopping portal and an account with Square. See my prior post for details.

Process

Begin early in the year, preferably January, and buy gift cards once a month. Your goal should be to spread out the purchases as much as possible over the year, and with each purchase buy as few gift cards as possible (so as to reduce the amount of fees paid to Amex). For example, if your goal is to spend $25,000 on a card, a good approach is to buy one $2000 gift card per month for 11 months and then one $3000 card the final month. If your goal is to spend $100,000 on a card, then buy $9000 worth of cards each month for 11 months and a $1000 card the final month. Some additional considerations:

• Make sure you have a high enough credit limit. The value of this hack could be wiped out by over-the-limit fees if you’re not careful!
• In order to keep a good credit rating, try not to approach your credit limit. See DansDeals for more about this. However, I’d recommend against paying off your credit card multiple times a month since there are some indications that this might prompt a financial review from your credit card company.
• You must pay off your credit card bill in full each month. Otherwise you will be plagued with high interest charges that will quickly turn this deal into a disaster.
• Do not try this with a Citibank card since Citibank treats gift card purchases as cash advances. There are, apparently, ways to get around this by calling Citibank each time, but personally I wouldn’t take the risk.
• Think twice before attempting this with an American Express card. There have been many reports of people being put through an arduous financial review process by American Express in which their accounts are frozen for a few weeks and they are required to submit multiple years of tax records to Amex. Personally I’m half-hoping that this will happen to me so that I can blog about the experience, but you might not see similar value in it!

Examples

The following examples show the value obtained from this approach with various credit cards. To keep things simple, the examples assume that gift card purchases are made $5000 at a time. Since $3000 is the largest gift card amount you can buy, these examples assume that you will buy two cards each time ($3K + $2K = $5K). In the example from my prior post, I showed that the cost of buying and liquidating $5K in cards is $68.40. If you buy fewer cards, your fees will be slightly lower. If you buy more cards, your fees will be slightly higher. Also, some credit cards have multiple spend thresholds. In those cases, I always assume you will reach the largest one.

* As reported by reader JTI, in this Deals We Like post, if you have a Chase checking account, you can earn an extra 20% from all points earned via purchases. So, $100K of spend results in an extra 20,000 points above and beyond the threshold bonuses! For more information, see this offer from Chase.

Analysis

If you already own any of the cards shown above (or others with similar bonuses), there is no question that this is a great deal. If you are close to a threshold, but won’t quite make it, then this deal gets even better because your costs will be much smaller than shown above. Whether it is worth getting a card just to do this deal, is another matter. Each card comes with some excellent perks, but if you don’t value those perks, the cost per mile of this trick goes up substantially for most of the cards. The Chase Ink Bold, though, is in a class of its own. Even with the annual fee factored in, the cost to buy points is less than a penny each. This is all the more remarkable because you can exchange your points for cash at a value of 1 cent each and actually end up ahead cash-wise (I wouldn’t recommend it, though – it would be a heck of a lot of work for very small profit!). The best use of Chase points is to transfer to airline or hotel partners (when you need them) or to book travel through Chase Ultimate Rewards which makes your points 25% more valuable! I can’t really say enough about how great the Chase points program is. Instead, check out this post from ThePointsGuy. Also note that, unlike the other cards, the bonus points given by the Chase Ink Bold card are not based on calendar year. Instead, they use the anniversary of your enrollment date to determine when a year has elapsed.

There are many ways you can save money and effectively buy points and miles for even less than shown above. For example, you could sign up for American Express’ Premium Shipping Plan which, for $99 per year, will give you unlimited free shipping of gift cards. Even better, you may be able to find cheaper ways of liquidating the American Express gift cards, such as by using (some of) them for daily spend. Let us know in the comments below if you have ideas for saving money or earning more points!

Risks

This mile/point hack is not without risks. I’ll spell out here the ones I can think of:

Credit Card Financial Review

Credit card companies use sophisticated rules engines to determine when there is potentially fraudulent activity on an account. If you do this trick a lot, it is very likely to cause your account to be flagged and reviewed. Many people who have done similar tricks with American Express cards have complained about having their accounts frozen for weeks while the review took place. If this happens to you, be polite and honest about what you’re doing and hopefully you’ll get through it unscathed.

IRS Audit

Starting in 2012, Square will report your transactions to the IRS if you exceed both $20,000 in payments and 200 payments. While there is nothing illegal about this hack, I’m sure you don’t want the headache of explaining these transactions in the case of an audit. Therefore, I’d recommend being very careful to keep the number of credit transactions you accept via Square to fewer than 200.

Cash Advance

This hack works because gift cards are counted as regular purchases by most credit card companies. However, Citibank is known to treat gift card purchases as cash advances instead. If this happens you will not earn points on these purchase, but you will likely incur unpleasant interest charges and fees. Before going full steam ahead with this hack, I’d recommend that you try out a single small gift card purchase to make sure it goes through as a regular purchase.

Conclusion

The technique described in this post offers the possibility of racking up huge amounts of points and miles for very little money. However, the process is complicated and risky. Is it worth it to you? In follow up posts I’ll show how you can leverage this hack to earn additional benefits beyond cheap points such as free flights, airport lounge access, and airline and hotel elite status. Stay tuned.

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