Options for paying to increase credit card spend. Are they worth it?

Signing up for credit cards is, by far, the easiest and quickest way to get huge numbers of points and miles. By signing up for cards regularly, it can be easy to earn hundreds of thousands of points per year.  There is, though, a significant obstacle to this approach: Most big signup offers have big spend requirements.  A typical offer, for example, requires $3,000 of spend within the first 3 months of card membership.  Some spend requirements are much higher.  For example, I recently signed up for an Amex Business Platinum offer that requires $20,000 of spend in 6 months to get the full bonus.  Even if you don’t go for offers like these, spend requirements can add up to big money very quickly if you sign up for more than one card at a time.

A solution to the minimum spend obstacle is called “manufactured spending”.  Manufactured spend techniques are ways of increasing credit card spend without losing much money. For example, until recently it was possible to fund the Target Prepaid REDcard (AKA REDbird) with a credit card and then use those loaded funds to pay off your credit card bill.  In that case, no fees were involved at all.  In a recent post, I showed options free manufactured spend that still exist.  Please see: Free manufactured spend. What’s left?

As free manufactured spend techniques become harder to find, it is worth considering paying for the ability to manufacture spend.  Let’s look at some options that are currently available that incur fees:

Pay and get your money back

With the following options, you can use a credit card to pay and get your money back (less fees and expenses):

• Kiva loans: Estimated “fee” (loss due to defaults + cost to tie up money): 1.5%.  Kiva does not charge fees for making loans via credit card, but you do risk losing money due to loan defaults. By sticking with “safe” loans, you can minimize this risk, but you can’t avoid it altogether. There is also a cost to tying up your money long-term since loans typically take 6 to 12 months to repay.  For full details about manufacturing spend through Kiva loans, please see: Kiva: loans, points, and miles
• Credit card processing (e.g. Square Reader): Estimated fee: 2.75%. Several companies make it easy for small businesses to handle credit card payments.  One very popular example is the Square Reader which charges 2.75% per swipe.  Theoretically, you can set yourself up as a business and then manufacture spend through the credit card reader.  BUT: Most services will shut down your account if they suspect that you are paying yourself.  This approach is not recommended.
• Gift cards / reload cards: Estimated fee: .8% to 1.3%.  It’s possible to buy Visa or MasterCard gift cards and use them as debit cards in ways that will result in getting your money back.  Fees vary quite a bit both with regards to fees for buying gift cards, and fees for liquidating gift cards.

Pay friends

A few services exist that let you pay friends with credit cards. In these situations it should be possible to manufacture spend by paying a friend and asking them to pay you back directly (with a check, for example).  You could also set up a circle of friend payments: Person A pays Person B who pays Person C who pays Person A.  Unfortunately, the fees for doing this are pretty steep:

• Paypal: 2.9% + 30 cents
• Venmo: 3%

Pay bills

A number of services let you use credit cards to pay bills that you might not otherwise be able to pay with a credit card (e.g. mortgage, rent, utilities, etc.).

Here are a few such services that offer a broad range of bill pay options:

• Evolve Money: 3% fee. Visa, MasterCard, Discover
• Plastiq: 2.5% fee. Amex, Visa, MasterCard, Discover
• ChargeSmart: Fees vary.  Amex, Visa, MasterCard, Discover

Then there are services specifically for paying rent:

• RadPad: 2.99% Amex, Visa, MasterCard, Discover (debit cards free)
• Many others. See: Doctor of Credit: Complete List Of Options For Paying Your Rent With A Debit Or Credit Card

And there are services for paying federal taxes (the IRS maintains a list here):

• PayUSAtax.com: 1.87%. Amex, MasterCard, Discover. 2.29% for Visa.
• ValueTaxPayment.com: 1.87%. Amex, MasterCard, Discover. 2.29% for Visa.
• OfficialPayments.com/fed: 2.35%. Amex, Visa, MasterCard, Discover
• ChoicePay.com/fed: 1.88%. Amex, Visa, MasterCard
• Pay1040.com: 1.87%. Amex, Visa, MasterCard, Discover
• Businesstaxpayment.com: 1.87%. Amex, Visa, MasterCard, Discover

Is it worth paying to meet minimum spend requirements?

Sometimes, the value of points earned for spend outweigh the cost to manufacture spend.  In those cases, it definitely can be worth paying fees in order to meet minimum spend requirements.  For example, suppose you sign up for the Barclaycard Arrival Plus card which currently requires $3,000 spend in order to get a 40,000 point signup bonus.  The Arrival Plus card offers 2 points per dollar for all spend and points are worth 1.1% each towards travel (thanks to the card’s 10% points rebate on travel).  So, the card earns 2.2% towards travel for all spend.  If you were to meet the minimum spend requirements by paying federal estimated taxes with a 1.87% fee, you would come out ahead:

• Pay $2945 in taxes
• Incur $55 fee
• Total credit card spend: $3000
• Points earned on spend: 3000 x 2 = 6000 (worth $66 towards travel)
• 6000 points are worth $66 towards travel, so you come out $11 ahead.
• You meet the $3K minimum spend requirement and earn 40,000 points

The above example shows an approach to meeting minimum spend requirements that is both easy and rewarding.  Of course, you can come out even further ahead by using cheaper manufactured spend techniques, but those tend to be more difficult and/or more risky.

Let’s now look at a less obvious example.  3% is at the high end of the fee structures for manufacturing spend.  And, some cards offer paltry rewards for spend.  For example, outside of its bonus categories, the Marriott Rewards Premier card offers only 1 point per dollar.  And, I value Marriott points at only .55 cents each.  So, if you use a service like Venmo, with it’s 3% fee, to manufacture spend with the Marriott card (which currently requires $2000 spend for its 70K signup bonus), the fees involved will lead to a net loss (not counting the signup bonus for the card):

• Pay $1942 to a friend via Venmo
• Incur $58.26 fee
• Total credit card spend: $2000.26
• Points earned on spend: 2000
• 2000 Marriott points are worth approximately $11, so you now have a $47.26 loss
• You meet the $2K minimum spend requirement and earn 70,000 points

This is somewhat of a worst case scenario: using the most expensive manufactured spend technique with a card that offers one of the lowest rates of return for regular spend.  However, even with this example, the results aren’t too bad.  For the $58.26 fee, you would end up with 72,000 points.  Even with my conservative .55 cents per point valuation, 72,000 points are worth approximately $400.  If I had no better options, I would gladly pay $58.26 for 72,000 points!

Is it worth paying to manufacture spend, without a signup bonus?

Some people manufacture spend to make money (using cash back credit cards).  Others manufacture spend to earn points & miles that can sometimes be used for great value towards travel.  Either way, one should consider the following factors:

• Costs:
  • Fees involved
  • Gas, mileage, etc.
  • Effort required
  • Cost of tying up money (e.g. with Kiva loans, you won’t earn interest on your money and won’t get it back for many months)
• Risks:
  • Risks vary by technique. In general, be prepared to have enough money in the bank to cover the possibility of your money being tied up much longer than expected.
• Rewards:
  • It’s important to understand how much you value the credit card rewards earned

Overall, your rewards should be much greater than the costs involved in order to compensate for your incurred risk.  In general, most credit cards earn rewards worth between 1% and 3% for non-bonus spend.  And, since most manufactured spend techniques cost between 1% and 3%, manufacturing spend without a signup bonus is often a losing proposition.  To make it worthwhile you would need to seek out ways to increase rewards via category bonuses, big spend bonuses, buying Amex gift cards through cash back portals, etc.

Conclusion

If you’re struggling to meet minimum spend requirements through everyday spend, then its worth considering paying fees to manufacture spend.  Some of the easiest options include:

• Pay end of year or estimated federal taxes. 1.87% fee.
• Pay bills that can’t normally be paid with a credit card via Plastiq.  2.5% fee.
• Pay a friend via PayPal or Venmo with a credit card. ~3% fee.  Have friend pay you back via check, for example.

If your goal is simply to increase rewards through manufactured spend, things become much more complicated.  Make sure you fully understand the costs, risks, and rewards before proceeding.

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