Best practices for increasing credit card spend through prepaid cards

Earlier this week, I published “My winter 2016 approach to manufactured spending.”  In that post I mentioned that all 6 of the Serve cards I had been managing were shut down.  And, I wrote:

I can load gift cards to any number of other cards for a small fee ($4.95 or less, typically).  Many such cards (Account Now, for example) have free bill pay, so a 1% load fee isn’t the end of the world, especially if one can buy gift cards at a very low cost in the first place.

Many people followed up with me to ask about Account Now.  To tell the truth, I don’t think there’s anything particularly special about Account Now.  I simply used Account Now as an example of a card that offers free bill pay.  Since then, I’ve been putting together a list of prepaid reloadable cards that offer free bill pay.  You can find the list here: Reload Cards with Free Bill Pay.  I consider it a work-in-progress.  If you know of other cards to add to the list or you have better info than I presented in the list, please head over to that page and add a comment or two.

Prepaid Card Manufactured Spend Best Practices

Ever since Amex shut down many Bluebird and Serve accounts (see: Amex kills Bluebird and Serve for manufactured spend), many people have been scrambling to find the next best thing.  If that’s you, a good starting point, I think, is this page which lists a number of different approaches: “How to increase credit card spend.” Many, though, are comfortable with the old Bluebird / Serve approach and would like something similar.

With prepaid reloadable cards, the manufacturing spend cycle looks like this:

1. Use a credit card to buy Visa or MasterCard debit gift cards (find best options here)
2. Use those gift cards as debit cards, in-store, to reload a prepaid reloadable card.
3. Use the prepaid card’s bill pay feature to pay bills that can’t usually be paid by credit card: mortgage, rent, or even your credit card bill.

Assuming you’re going to go out and try the above steps with a new prepaid card or two, here’s some advice to get you started…

1. Find local opportunities

Buying Visa or MasterCard gift cards with a credit card isn’t too hard.  True, it can be tricky to find good options in some cities, but most people have ready access to a number of options.  The hard part is loading the value of that gift card onto a prepaid card.  It generally can’t be done online.  And, many stores accept cash only for prepaid reloads.  The trick is to find local stores that offer reload services, and are willing to accept debit for payment, and have not been trained to turn away people who pay with gift cards.

Once you find a store that works, don’t assume that other stores within the same chain will work.  For example, in some parts of the country a certain well known grocery chain accepts debit cards for financial transactions whereas in many other parts of the country stores in that same chain do not.  Similarly, a certain Midwest discount store accepts debit cards, but many cashiers have been trained not to allow gift cards to be used as debit cards for those transactions.

2. Always have a backup plan

Opportunities come and go all the time.  If you’ve found one way to liquidate gift cards that’s good, but it’s not enough.  I recommend finding at least 2 distinct options before investing heavily in gift cards.  If you get stuck with a bunch of gift cards anyway, please check out this post for ideas: Bluebird Serve Birdpocalypse: How to liquidate remaining gift cards.

3. Answer “debit” when asked how you want to pay

When reloading a card at a register, you’ll often be asked how you want to pay.  Never say “gift card”.  The correct and truthful answer is “debit card”.  Some cashiers will be confused if you mention gift cards and may think that gift cards are not a valid form of payment.

4. Never leave a balance

If you use prepaid cards to manufacture spend then (unless you’re incredibly lucky) your account will eventually get shut down.  When that happens, the issuing bank might not release your funds for quite a while.  To prevent that possibility, I recommend unloading the card as soon as possible after loading it.  For example, load $500 to your prepaid card in-store then, in the same day, log in and use the card’s bill pay feature to pay your credit card bill, mortgage, or whatever.

Another reason to keep the balance at zero is to avoid monthly fees or inactivity fees.  Fees are collected by drawing down your balance.  If there’s no balance, they can’t collect those fees.

5. Don’t use the cards for anything but manufacturing spend

Most prepaid cards have ridiculous fees.  Some charge a fee for every transaction.  And, unlike your credit cards, most prepaid cards don’t offer any kind of rewards.

You might think that using the card as expected will prevent the card from getting shut down.  That’s certainly possible, but I’ve tried that approach with several cards in the past and have always been shut down anyway.

One exception: if you have a card that you really don’t want to risk losing (such as Serve or Bluebird, for example) then it makes sense to do things that may keep the card alive.  The number one thing you can do to try to keep it alive is to use it for day to day spend (e.g. use as a credit card at swipe terminals to buy things).

6. You will get shut down. Don’t worry. Try again.

The first time one of my prepaid cards was shutdown I was worried that it would somehow affect other things.  Would there be a black mark on my credit report or ChexSystems report?  Over time I learned that it really had no effect at all (other than sometimes tying up my money for a while).  In fact, with some prepaid cards I was able to apply for the same card again and start over!  Overall, I think its best to think of prepaid accounts as disposable accounts.  As long as you keep them empty of funds, you’ll be fine if they get shut down.

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