Yesterday I detailed how people (usually unknowingly) buy points whenever they choose to earn points instead of saving money (see “Buying points, unwittingly“). That post was focused primarily on the types of everyday buying decisions people make regardless of whether their primary goal is to earn points. Often, though, people very deliberately go out of their way to get points even if it means spending extra money to do so. A common approach to buying points is a technique called “manufactured spend”. This is where people people get points by running up spend on their credit cards in ways that result in getting most of their money back, or result in being able to pay bills not usually amenable to credit card payments (e.g. rent, mortgage, taxes, etc.).
Types of manufactured spend
There are many, many ways people have found to manufacture spend. Here are some:
- Reload cards: Buy reload cards, load card value to a product that can be used for bill pay or to easily cash out. See “The reload game is on“.
Amazon payments: Discontinued. Target Amex: Discontinued. Amex Campus Edition: Discontinued.
- Buy and sell: Find products (or gift cards) that you can buy at a low price and sell for a high price. If you’re lucky you can make money or at least break even while running up credit card spend. Note: there are many potential “gotchas” in this approach including: seller fees, customer returns, customer fraud, items not selling, etc. Tread carefully.
- Microloans: Services exist to help connect borrows with potential lenders of very small loans (microloans). In some cases, it is possible to pay for loans with a credit card and receive cash back when the loan is eventually paid off. A great example is Kiva.org, which I’ve written about many times before. With Kiva, you do not earn interest on your loans, but in my experience, you will get most, if not all, of your money back over time (Kiva reports default rates under 1%). For more information, see “How to maximize points and virtue through Kiva loans,” and “Minimum spend requirements? Kivalens to the rescue.”
- Pay rent or mortgage: Services exist that will let you pay your rent or mortgage by credit card, for a fee. Popular examples are WilliamPaid and ChargeSmart. All of these services charge hefty fees that make this an expensive way to run up spend.
- Pay taxes: The IRS keeps a list of services that allow you to pay your federal tax bill by credit card or debit card. Credit card fees start at 1.88%, but debit card fees are as low as $2.99 for your entire payment. See this IRS page for details.
Discount gift cards
Most of the techniques for manufacturing spend have fees associated with them. To reduce or eliminate those fees, it is often possible to buy a gift card at a discount first, then use that gift card to manufacture spend. For example:
- Buy Amex gift cards, get cash back: As I’ve written about before, the portals BigCrumbs and TopCashBack offer cash back when you click through to American Express to buy gift cards (they offer 1.4% and 1.5% cash back, respectively). By buying Amex gift cards this way and then using those gift cards to manufacture spend, it is possible to reduce fees as a % of spend significantly. Note a couple of gotchas: 1) you may not be able to buy reload cards with Amex gift cards; and 2) Not all vendors and services accept Amex as a type of payment (ChargeSmart, for example).
- Buy gift cards, get rebate: Every now and then a major retail store (Staples, for example) will offer a rebate for purchased Visa or MasterCard gift cards. Save money by buying gift cards this way, then use those gift cards to manufacture spend.
- Save money almost everywhere: If your goal is to run up spend by buying and selling, then you should start by taking advantage of every trick in the book to save money on the buying side. These include buying discount gift cards, using cash back shopping portals, finding the best coupons, etc. For details, see “Save money almost anywhere.”
Another way to bring down costs of manufactured spend is to get more points in exchange for those costs. The best way to do that is to fully leverage credit card category bonuses. Here are a few examples:
- 5X drug stores: If you buy a $500 reload card and pay a $3.95 fee with a regular credit card, you will be buying points for .78 cents each. If, however, you use a card that earns 5X at drugstores (a special version of the ThankYou Preferred card, for example), you will be buying points for less than .16 cents each.
- 5X office supply stores: Use a card that earns 5X at office supply stores (see “Best Category Bonuses“), and buy Visa, MasterCard, or American Express gift cards at such stores. See, for example, “$200 Visa cards. Are they worth it?“
By combining techniques, it is possible to run up spend at extremely low costs or even for free. For just one out of many examples, see “Pay federal taxes by credit card, almost for free.”
The cost to manufacture
A reader named Russell recently emailed me a spreadsheet he had put together that calculated the cost per point of various manufactured spend techniques. Here is a shortened version:
Technique to run up $4K spend per month
Card ATM fees
Bank ATM fees
Cents per point at 1X
|Reload: Buy 8 $500 reload cards, cash out w/ Bluebird||8 * $3.95 = $31.60||.N/A||N/A||.79|
|Target Amex: Load 4 times, cash out at CostCo ATM 10 times||4 * $3 = $12||$3 x 9 = $27||$1.25 x 10 = $12.50||1.29|
|Amex Campus Edition: Load card 8 times, cash out at CostCo ATM 10 times||8 * $3.95 = $31.60||$2 x 9 = $18||$1.25 x 10 = $12.50||1.55|
The table above shows the cost per point of a few spend manufacturing techniques based on the assumption of earning only 1 point per dollar with your credit card. If you can earn more than 1X, the costs are easily calculated by dividing the cents per point listed above by the “X”. For example, if you can get 1.5X when loading your Target Amex, divide the cost 1.29 cents by 1.5, to get to a cost of .86 cents per point. Here, I’ve done some of these calculations, with the Target Amex technique:
Example credit card (and bonus considerations)
Points earned per dollar
Cost of points earned by loading and cashing out Target Amex
|Basic airline card (US Airways, Delta, AA, etc.)||1||1.29|
|Chase Freedom (with 10% checking bonus)||1.1||1.17|
|SPG transfer to miles w/ 25% bonus||1.25||1.03|
|Delta Platinum (10K bonus after $25K spend)||1.4||.92|
|United Club Card||1.5||.86|
|Special ThankYou Preferred at Target (some Target stores are classified as groceries)||5||.26|
This is far from an exhaustive set of tables. They should be used just as a starting point before you take it further. For example, suppose you were to load the Target Amex card with an Amex gift card bought through BigCrumbs. Assuming you save 1% (after fees are accounted for), you can subtract a penny from each of the above rates. The cost per point, then, would drop below zero in some cases! Be sure not to buy Amex gift cards with Citibank credit cards, though, since Citi treats those purchases as cash advances.
Reasons to do it
The point of manufacturing spend isn’t always just to buy points based on spend. Some people do it to reach the minimum spend requirements on new credit cards. Some do it to earn elite status (see “Mileage running, from home“). Some do it for other big spend bonuses such as companion passes, free hotel nights, etc. (see “Best Big Spend Bonuses“).
Is it worth it?
All of the above techniques and options take time and effort. There are also risks: if you do too much you could be subject to financial review by your credit card company; your credit score could drop as your credit balances increase; you could end up paying fees if you are unable to pay your credit card bills on time; etc. For me, I do many of these things because it is my hobby. I do it both for the challenge and for the rewards (which include things like high level elite status with Delta, and fantastic trips). How about you? Are the costs and risks worth it?
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Byron: I haven’t done so but I know others who have
Andrew C: I know their are other cards with Bill Pay, but I’ve lost track of which ones since I don’t use them (other than Bluebird)
ABC: Yes, it should work with gcs. Haven’t tried it though.
Jesson: Thanks. No, Target doesn’t sell any reloadable cards other than the Target Amex (which they do not allow to be loaded w a Target gift card)
Talha: the best use for ThankYou points is to get a premium card and use points to pay for airfare. See this post for more: https://frequentmiler.com/2013/02/19/thankyou/
And you’re good at your job.
FM – can you confirm that you have used AMEX GC to reload Target AMEX?
@Alex – BigCrumbs FAQ says no 1099 for any members.
Props to you for the detailed spreadsheet and analysis. You really do a great job explaining things
great post as usual. This games favors people who can spread the annual fees across a high spend to maximize categories.. I’m staying away from applying too many cards b/c of AoAA. But I definitely maximize within my constraints.
Another way to look at the cost of buying points is the redemption. I think of $10k spend on club carlson card as “buying” 2 top hotel nights for $200. This really helps me think straight. Your other posts have convinced me about the value of cashback.
I recently placed my first Amex GC order through BigCrumbs. I’ve already earned about $150 from them in 2013 mostly from booking hotels for business trips so I’m expecting to exceed $600 and get a 1099 from them.
I’d think this wouldn’t be taxable income for the same reason that credit card cash back isn’t taxable income. But, how to demonstrate that to the IRS? I wouldn’t mind paying income taxes on the portion that I earned for business expenses since if my employer reimburses me for the full cost of the hotel, any rebate I earn effectively IS income. Similarly, income from referral purchases should probably be considered income. But if I am going to be buying Amex GCs, whether or not the cash back is taxable makes a major difference in the cost-benefit analysis, especially for those in higher tax brackets than I.
Anyone successfully deducted the amount of the 1099 or contested it in some other way that they’d care to share? I’m assuming so because I’ve never seen any discussion of BigCrumbs here or elsewhere mention the tax aspect.
Noticed 5X at bookstores with Cash+. Works with GCs or can they track what you bought?
Do you know of any other prepaid cards with billpay that work with VR? (besides BB)
I am doing some “experiments” for Target Gift card, and maybe it can expand your laboratory section a little bit. It works fine to use Target egift card to buy plastic gift card, but no cash back in TC portal. Next time I am going to do egift card + credit card to buy plastic cards to whether it worked. One quick question, does Target sell vanilla visa gift card in store? Can I use Target gift card to buy one?
thanks for the quick reply, whats the best way to use thankyou points?
Did you use the citi thankyou yet to buy vanilla reloads and if so did that work and you got 5x the points, thank.
Talha: Yes it works. I got 5X when buying VR at a drugstore.
Has anyone been able to get vanilla reload purchases to work at family dollar or dollar general?
FM, for the Citi Preferred 5 TY points per $1 at drugstore is good for only 12 months, right? At least that’s what it says on the app link
Get a job.
voice of reason: Blogging is my job! 🙂
Terri: Yes, that’s right. 5X for the Citi Preferred is limited to 12 months. Given how fast these opportunities come and go, 12 months is a pretty long time…
TheDapperChurner: Not me.
FM, BigCrumbs directs me to Amex site, which offers GCs but only in denominations up to $200. You mentioned, “You’ll generally do better to buy fewer, larger gift cards (such as one $3,000 gift card).” Any suggestions on where to find those?
I meant to say category unlimited cash back? I thought you said they will start limiting it in July.
Any word on the topcashback one day 2% back on amex cards?
FM, Do you know if US Bank is still doing the category cash back? I recall from a previous post, you said it would start becoming limited in July?
Joe: Yes, the Cash+ card still offers 5% categories, but they will be capping them in July. They’ve already removed the bill pay category as well.
Adrian: No, I haven’t heard more about that yet. I’ll post when I do
Steve: It depends which gift card you choose. Pick the “Classic Gift Card” (top. left corner) and you should be able to get them up to $3K each
@Romsdeals, I agree about the Target AMEX and now only use it to as part of my strategy to meet minimum spends on AMEX cards, to avoid have too many charges through drugstores.
Target AMEX is a little too much work for little payout now IMHO. I was cycling through many $500 VISA gc’s with Target AMEX, but now it is too costly.
Target is a “Grocery store” for Citi, US Bank and others, but not for AMEX.
hey FM, great post. hey so how would you find out which Targets code as GROCERY. that’s an awesome way to rack up the 5x/$1 TY card i got bc of you. (and more credit card apps through you)
Ryan from MA: Thanks! I think you’d have to simply buy something at each Target store near you and see how it is coded on your online statement.
I have not used TopCashBack before. You write that TopCashBack gives 1.4% to 1.5% back on Amex GCs. That would be $7 – $7.50 on $500 worth of Amex GCs. Assuming I can buying Vanilla Reload Cards at CVS with a credit card, couldn’t I use these Amex GCs to pay for Vanilla Reload Cards? I only get 1x points when I pay for Vanilla cards, but that would be 500 points and a positive return ($7.50 from TopCashBack – $3.95 fee = $3.55). Does anyone have experience with this?
Steve: TopCashBack offers 1.5% back and BigCrumbs offers 1.4% back. Keep in mind that Amex gift cards have fees and shipping costs so you’ll generally do better to buy fewer, larger gift cards (such as one $3,000 gift card). The problem with using them at CVS to buy reload cards is that some (if not all) CVS registers don’t allow paying for VR with Amex gift cards. That’s been my experience anyway.