The Current State of Manufactured Spending

UPDATE:  The Amex MS cycle is dead.  At least for now.  Amex has changed the terms for all portals, large denomination gift cards no longer earn cashback.


With the impending demise of the Delta Suntrust Card golden goose, this seems like a good time for a  few words about the current state of the manufactured spending pastime.  If you're reading this, you likely know that Manufactured Spending ("MSing") has long been a good way to meet initial spend requirements for new credit card signups and as a way to directly generate miles and points.

Some of the best MSing opportunities have passed us by.  Please doff your caps for a moment as we reflect on the US Mint Direct Ship Program, Amazon Payments, Square Cash, Vanilla Reloads at Office Depot, unlimited Vanilla Visa purchases at CVS, and our other dearly departed MS methods.  <wipes away tear>  Now, where were we?  Ah yes, the current state of the hobby.

There are still some pretty good MS methods out there.  The single best is the Amex giftcard > Prepaid Debit Card > Money Order cycle.  American Express sells gift cards, up to $2,000 in value, that can be used almost anywhere Amex is accepted.  Amex also allows the option of personalizing the gift cards with your name.  I would highly recommend using this option.  Those gift cards can then be used to purchase prepaid debit cards that are, in turn, used to purchase money orders.  The cycle looks like this:

This method allows the user to generate a reasonable amount of spending without incurring an equivalent amount of debt.  It does entail fees, though.  Specifically at stage one the user will incur a purchase fee of $3.95 per $2,000 Amex gift card.  The user will also incur a shipping fee, unless he opts to purchase a year of free shipping from Amex for $99.  Then, at stage two, the user will incur a purchase fee for the Visa/MC prepaid debit card (typically $4.95-$5.95 per $500 card).  Finally, at stage three, the user will incur a money order purchase fee (typically $0.69-$0.99 per $500 in value).  These purchase fees, alone, total around $26.51 per $2,000 in manufactured spend (a rate of approx. 1.3% of the amount of spend manufactured).  Thus, this method could be equated to purchasing miles or points at a rate of 1.3CPP (assuming you are using a card that earns 1 point per dollar spent).  That's not a bad rate, particularly if you only need to spend a few thousand dollars for an initial spending requirement.

However, it gets better.  At the time of writing, many shopping portals pay a rebate on purchases of Amex Gift cards.  For instance, my favorite shopping portal, Topcashback, currently offers a rebate of 1.5% on the purchase of Amex gift cards.  By clicking through their website before you purchase, you can earn a rebate that will offset the fees that I've described above.  Of course, there is still the opportunity cost of the time it takes one to purchase the debit cards and money orders.

So, how does one go about it?  Well, there's a lot of information in this Flyertalk thread.  CVS still sells various forms of Vanilla prepaid debit cards that can be loaded with up to $500.  There is currently a limit of $2,000 worth of cards per rolling 24 hour period.  This limit is enforced by a scanning (and presumably recording) drivers license information.  Vanilla cards are very easy to use because they activate instantly and the PIN is set by entering any four digits the first time you use the card.  Thus, one could order a $2,000 Amex Gift card and take it to CVS to purchase 4 variable load Vanilla debit cards, paying $4.95 to load each one (determining the amount to load on each card is left as an exercise for the reader).  One would then open the Vanilla debit cards, take them to a grocery store that sells money orders (such as Winn-Dixie or Publix), purchase money orders with the Vanilla debit cards, and deposit the money orders in one's own bank account.

CAVEAT EMPTOR:  This is not a foolproof method and things could go wrong.  For instance, CVS could stop allowing the purchase of Vanilla cards with a credit card.  Or Western Union or Moneygram (the two larges money order companies) could forbid the purchase of MOs with debit cards.  Or Congress could repeal Dodd-Frank or the Durbin ammendment (which made PIN-based prepaid debit card transactions possible).  That's a good reason not to purchase more Amex Gift Cards than you can easily liquidate.  It's also a terrible, no-good, bad, bad, bad, idea to engage in any manufactured spending unless you pay your credit card bills off, in full, every month.  Carrying a balance, and paying the ruinous interest rates that entails, means that any miles you earned would be far, far too expensive.

Thoughts on Manufactured Spending

     To briefly explain to those who may wonder what I'm talking about, Manufactured Spending is a term coined to describe ways to spend money on credit cards without actually incurring credit card debt.  In the glory days, it involved buying actual dollars from the United States Mint with a credit card and depositing those dollars into your bank account to pay off your credit card bill.  Nowadays, it mostly consists of purchasing prepaid gift cards and reload cards, liquidating those cards through various means, and using the proceeds to pay off your credit card bill.  Manufactured spending has proven useful for meeting initial spend requirements for many credit card bonus offers and, in many cases, as a means for effectively purchasing miles or points at a very low cost.

     In the past few days there's been a tremendous kerfluffle in the miles & points world regarding the possibility that a national drug store chain will stop allowing customers to purchase a particular reload card with their credit cards.  This "crisis" has generated a over 500 (ed: 503!) page thread on Flyertalk.  The thread is full of much wailing and gnashing of teeth over the possibility that the cards will no longer be available.

     But here's the thing:  this is no surprise.  Manufactured spending opportunities are freaks.  There simply isn't any market-based reason for most of them to exist.  Some, like the Dollar Coin Direct Ship Program, were products of perverse incentives created by the wretched hive of scum and villainy known as the United States Congress.  Others, such as the PIN requirement for prepaid credit cards, are the product of presumably well intentioned regulation by the wretched hive of scum and villainy known as the Executive Branch.  When an organization decides that allowing those opportunities to continue is sufficiently troublesome or unprofitable, they will go away, e.g. Office Depot's decision to stop allowing credit card purchases of reload cards more than a year ago.   As it's been said many times, "if something can't go on forever, it won't."

     The silver lining is that there will almost certainly be new opportunities.  The world didn't end when the Mint stopped selling coins at face value, and it won't end now. 

    

Manufactured Spending: Trimming Costs with the Fuel Rewards Network

Anyone who regularly engages in Manufactured Spending should be fully aware of the actual cost of their spending.  For example, if you buy $1000 in Visa gift cards at Winn-Dixie, you'll pay $11.90 in purchase fees.  If you then liquidate through purchasing money orders, the you'll likely pay another $0.70 in purchase fees.  That brings your actual cost for spending $1,011.90 to $12.60.  So, with a single miles card you're paying 1.26 CPM.  With a 2% cashback card, you're making .74% profit.  With the 2.2% Barclay Arrival card, your profit (in the form of travel credits) goes up to .94%.

Winn-Dixie also participates in the Fuel Rewards Network, a loyalty card system that pays off in cents-off per gallon (CPG) of gasoline purchased at Shell stations.  Normally, Winn-Dixie spending earns 5 CPG per $50 spent.  Unfortunately, only the fee portion of Visa gift card purchases counts.  That means that for roughly every $5,000 in manufactured spend, you'll also earn 5 CPG off your next gas purchase (up to 20 gallons).  Since I drive a truck with a better than 20 gallon tank, I value that 5 CPG at approx. $1.  That return is so minimal that I do not factor it into the "cost" of my spending.

However, for the rest of December, there's a way to juice that return.  Fuel Rewards has partnered with Mastercard and is paying a bonus of 3 CPG for every $100 spent at Winn-Dixie (or any other FRN partner store) when you link your Mastercard to your FRN account.  I didn't expect that it would work, but in the spirit of scientific inquiry I made a test purchase with my Barclay Arrival card (which is a Mastercard) after linking it to my FRN account.  The purchase quickly showed up in my FRN "dashboard", but did not show any fuel rewards earned.  However, to my surprise, my account now shows that I earned 30 CPG for the $1,011.90 purchase:

"MasterCard Grocery Bonus 3 cents on $100     $0.30"

Since I value 10 cents in Fuel Rewards at approx. $2 (10 cents x 20 gal.), that means I earned $6 worth of gas on the purchase.  This should work with any miles or cashback earning Mastercard once you've linked it to your FRN account and is a nice way to reduce the cost of your manufactured spending for the rest of December.

Manufactured Spending

     Even dilettantes in the miles & points world know that the big points offers come from credit card signups.  However, these offers often come with sizable spending requirements.  A couple of years ago, I signed up for an Amex Business PRG card for a 75,000 MR point bonus.  That card required $10,000 in spend over 3 or 4 months.  Others may require $5-10,000.  That's a lot of money for the average household.  Even putting as much ordinary spending as possible on cards, many folks might struggle to reach $2,000 in monthly spending.  That's where "manufactured spending" comes in.

     "Manufactured Spending" is a term-of-art that's arisen in the miles & points world to denote various techniques for artificially inflating the amount that you spend on credit cards in a given month.  There's a whole forum devoted to it over at Flyertalk.  "Manufactured Spending" can take several forms, from "moving forward" spending by purchasing gift cards that you intend to use later to buying cash equivalents and using them to pay off your credit card bills.

     The single most useful tool for the beginning points-seeker is Amazon Payments.  A few years ago, Amazon introduced "Amazon Payments" in a move to compete with Paypal.  AP will allow you to send money (using your credit card) to anyone else who has an AP account.  You can send up to $1,000 per month without paying any fee at all.  I've heard that some people even have "AP clubs" in which someone sends a payment to a friend, that friend sends a payment to a third friend, and the third friend sends a payment to the first friend.  All-in-all, AP is very simple way to manufacture spending to meet credit card sign-up offer requirements.

     Other methods are more esoteric and are discussed at great length on Flyertalk.  One that recently ended was Wells Fargo's Prepaid Visa card.  Wells Fargo allowed the card to be funded up to $2500 with a credit card.  They charged a $5 fee to do so.  That worked out to a 0.2% fee.  Since the card was a debit card, the loaded funds could be quickly liquidated through ATM withdrawals and money order purchases.  Sadly, Wells Fargo changed the rules so that the card can now only be funded with Wells Fargo credit cards.

     The lesson to take from this is that you needn't be scared off from taking a card offer simply because the initial spending requirement is high.  Of course, before manufacturing any spending yourself, be sure that you have the discipline to pay off your cards every month.  The Banks count on CC users paying interest.  Once you start doing that, the points & miles game quickly becomes a losing one.

Buying Points vs. Manufactured Spending

One of my favorite bloggers covered Club Carlson's current promotion for a "Flash Sale" on Club Carlson points.    With this Club Carlson deal you can (for a limited time) buy points at .4cpp, a substantial discount over the normal rate.  It got me thinking about the value proposition of purchasing points directly from hotels/airlines versus obtaining them by manufactured spending.

As an initial matter, its rarely a good idea to purchase points prospectively, i.e. without a specific use in mind.  There's always the possibility that the points could devalue before you get the chance to use them.  But when you have a specific purpose in mind, deals like this one can be worthwhile.  For instance:  Mrs. Pointsninja have an upcoming stay at the Radisson Blu at the Zurich Airport.  The non-cancellable Advanced Purchase rate is 260CHF, or about $290.  But an award stay (which is fully cancellable) runs 50,000 Club Carlson points.  Through the current promotion, I could purchase 50,750 points for $203.  I could then use those points to book the room and effectively save $87, plus get a cancellable rate to boot!  The key, of course, is that I'd be purchasing points at a cost of .4cpp, but redeeming them at a value of .58cpp.

Of course, through manufactured spending with the Club Carlson Visa, I can quite easily "purchase" points at a rate of .21cpp, meaning that I could actually get the room for $185 cheaper than the Advanced Purchase rate.

Manufactured Spending- Earning Points and Making a Profit by Spending Money

     I've written about manufactured spending before.  Manufactured spending, or MSing, is a blanket term for a variety of techniques for generating credit card spending without actually incurring debt.  MSing even has its own forum on Flyertalk.  A basic MS cycle for purchasing Visa gift cards (one of several different techniques) looks like this:

In other words, you use your credit card of choice to purchase gift cards which you then turn into money orders that you use to pay off your credit card.  You'll incur some costs (approx. 1.1% of your generated spending), but so long as the points you earn are worth more than the fees you pay, you'll be in the black.  Ordinary MSing can be an effective way to greatly reduce the cost of travel.

    However, thanks to our good friends at American Express (otherwise know as America's most generous credit card company) you can actually generate a substantial amount of spending and earn a profit over and above the value of the points you earn.  That's because Amex has been selling gift cards through their site for the last several years.  And they pay referral fees to various shopping portals, who then pass part of that fee on to you.  As of the date of this post, you can earn 4% cashback on purchases of American Express gift cards.

     Here's a personal example.  Today, I purchased $5,000.00 worth of Amex Gift cards after linking through BeFrugal.com.  As of today, BeFrugal is paying (after a waiting period of around 60 days) 4%.  So, I'll earn $200 cashback for purchasing the cards.  I payed for the cards with my American Express Hilton Honors card, so I'll earn 15,000 Hilton Honors points.  Amex had a fee-free promotion for Father's day, so I didn't incur any purchase fees.  When the cards arrive, I'll take them out and use them to purchase Visa (debit) gift cards, incurring a fee of around 1% or $50 total.  I'll then use the debit cards to purchase money orders for a total fee of around $3-5.  Then, the money orders go back into my checking account and I pay off the original $5K charge.

     So, subtracting the fees I'll pay from the rebate I'll receive, my net profit will be $145.  Plus 15,000 Hilton Honors points.  That's not free travel, that's better than free travel!

UPDATE:  Befrugal is now down to 2.5% cashback.  This THREAD on Flyertalk tracks this deal pretty thoroughly.

Manufactured Spending- OneVanilla Prepaid

If you have a CVS nearby, OneVanilla Prepaid debit cards have long been the best option for generating spend with the giftcard-->money order-->bank method of manufactured spending.  The became slightly less valuable a while back when Sam Walton's chain of stores stopped recognizing OneVanilla cards as debit cards.  This meant that OVs could no longer be used to fund Bluebird cards or to purchase money orders.  Well, the door has cracked open again, because Wally World's self-service moneycenter kiosks are now recognizing OVs as debit cards.  FWIW, actual Money Center registers still treat OVs as credit cards.

UPDATE:  Reports of glitchiness today on Flyertalk.  I had the same issues that some Flyertalkers have mentioned: some OVs work, some are rejected as "debit unavailable."  No idea why that is.

UPDATED UPDATE: Still Glitchy.  Enough so, that I'll be letting this window of opportunity pass by unless I hear reports that things are improving.

Manufactured Spending- Another Disturbance in the Force

     There's been a great deal of distress over at Flyertalk lately due to the demise of one avenue for manufacturing spend.  Wally World (W**-Mart) has recently changed their POS software in such a way that prepaid Vanilla Visa Debit cards can no longer be used to purchase money orders or to load Bluebird cards.  This is a serious blow to folks whose source of prepaid debit cards is limited to CVS, since the only cards available on credit there are Vanilla cards.  There are (inflated, I hope) reports of people being stuck with many thousands of dollars in cards that they can no longer easily convert into cash equivalents.  There's a lesson here, of course.  Risk is an unavoidable part of life, but if you're smart, you'll limit your exposure.  If you decide to use any of the manufactured spending techniques, best practices call for you to liquidate the cards as fast as you accumulate them.  Don't get greedy and think that there'll always be a way to liquidate the cards later.

     As they said in Battlestar Galactica, "all of this has happened before and all of this will happen again."  Not long ago, there was a brief opportunity to use Home Improvement Gift Cards to purchase money orders.  It was clearly a glitch and not long for this world, but, nevertheless, some overenthusiastic folks loaded up on thousands of dollars worth of the cards and were caught short when the glitch was fixed.  If they were smart they only lost 5% on the deal, but then, if they were smart, they wouldn't have been holding $10K+ in HIGCs.  Remember: "If something can't go on forever, it won't."

Manufactured Spending- Emergency Exits

My last post got me to thinking about holding and liquidating prepaid Visa/Mastercard debit cards.  If you're reading this, you likely know that virtually all prepaid debit cards now come with (or can be assigned) PIN numbers.  Which means, or at least has meant, that one could easily liquidate them by purchasing money orders.  This week we saw the demise of one of the easiest and cheapest sources of manufactured spending when Walmart ceased accepting OneVanila Prepaid Debit Cards for the purchase of money orders.  Fortunately, most of us have alternative sources for liquidating the cards.

But what if those go away too?  (As could easily happen since Western Union is the source of virtually all money orders).  And what if you have a pile of debit cards on hand when that happens?  You could, of course, liquidate them at a rate of $2,000/mo via Amazon Payments. (Amazon Payments was shut down, effective Oct. 13, 2014).  Or you could use them for your everyday expenses.  Or you could take a small loss by purchasing giftcards for resale.  For example, most grocery stores have a pretty good gift card rack that includes gas cards.  Exxon gas cards can be sold to Cardpool.com for 92% of face value.  Linking to Cardpool through Topcashback.com will earn you an additional 4% on the sale price for your first $1,000.  So, for a hypothetical MSer holding $1K in gift cards that he absolutely had to liquidate the results would look like this:

$1K in Visa --> $1K Exxon
$1K Exxon sold to Cardpool- $920.00
4% from Topcashback -           $ 36.80
Total Recouped-                      $956.80

Ouch, that's nearly a 5% loss!  The rate gets worse after that first $1,000 because you lose the TCB bonus (Unless you signed up for multiple Cardpool accounts).

But wait, if your grocery store has a Fuel Rewards type program, you'll be earning some gas credit on the purchase too.  For instance, Winn-Dixie regularly offers 5cpg (up to 20 gallons) off for each $50 in gift card purchases.  So the numbers could look like this:

$1K in Visa --> $1K Exxon
$1K Exxon sold to Cardpool- $920.00
4% from Topcashback -           $ 36.80
$1 off 20 gallons-                     $ 20.00
Total Recouped-                      $976.80

Ugh, still a 2.5% loss.  There are other ways to liquidate cards (Amazon Payments, etc.) but almost all of them are going to entail some loss.  Once again, the lesson is: don't overextend.


P.S.:  Cardpool limits Topcashback commissions to the first $1K sold per Cardpool account.  (Hint).

From a Standing Start: A Business Class Ticket to Europe

Many bloggers, including those on my sidebar, focus on really exotic travel (Maldives, Far East, Oceania, etc.), but my tastes are more prosaic.  Mrs. Points Ninja and I prefer Europe, as, at a guess, most casual travelers do.  Since getting into the miles & points game, we've traveled to Europe four times, each time in either First or Business class, and each time using miles.  Over the years, I've built up quite healthy miles balances and currently have enough for at least four more transatlantic (TATL) trips.  But, as a though experiment, this post will lay out a strategy for achieving a reasonable travel goal: one business class tickets to Europe.  Of course, a couple could use this same strategy to earn enough miles for two tickets.

How to do it?  Well, if you're an actual frequent flier, congratulations!  You may already have the 100,000-125,000 miles that a business class ticket will cost you.  For the rest of us, the answer is credit card sign up bonuses.  Caveat:  No one should consider this strategy if they plan to carry credit card debt, i.e. not paying your bill off in full each month.  If you have credit card debt, my best advice would be to work at paying it off first.

With that out of the way, let's look at possible strategies.  For the purposes of this post, I'll assume that the reader has 0 miles.  I'll try to get you to 125,000 miles in a program with decent TATL availability with the minimum number of credit card sign ups (and credit report pulls) as possible.

Delta

There are a lot of bloggers that love to hate Delta.  Gary at View from the Wing coined the term "Skypesos" to describe Delta's Skymiles.  There's some grounds for the hate, but I'm something of a Delta partisan.  Two of our past trips, and one upcoming trip, have been in Delta's Business Elite (now "DeltaOne") class.  It's a decent business class product and TATL availability, particularly in the shoulder season, isn't terrible.  Plus, business class tickets include access to Delta's Skyclubs during your trip.  With Delta, TATL business class would require at least 125,000 miles.  Amex has an exclusive relationship with Delta, so only their cards earn Skymiles.  Here's how to get there with three credit card applications:

• Starwood American Express:  Currently Amex is offering 35,000 miles when you sign up for the Starwood Amex and spend $3,000 in the first 3 months.  The card carries a $95 annual fee, but it is waived the first year.  Cancel before you're first year is up and you'll pay no annual fee.  The nice thing about Starwood is that their points transfer to multiple airlines (including Delta) and you receive a bonus of 5,000 miles for every 20,000 miles you transfer.  Links for this offer can be found on Amex's home page or in any of the blogs on my sidebar.  OR, you could let me refer you and I'd earn a bonus when you signed up.  If you're interested, just email me at: thepointsninja@gmail.com.

• Starwood Small Business Amex: Essentially, this is the same offer as above, but for small businesses.  "But I don't have a small business" you say.  To that, I ask, have you ever sold anything on Ebay?  Then you have a small business.  Amex regularly approves small business applications for sole proprietor small businesses like this.  Lucky @ One Mile at a Time covers the card here.

• Delta Gold Amex:  Get the two cards mentioned above first (you can apply for both on the same day).  Then wait a couple of months and pick up the Delta Gold Amex.  The current offer is 30,000 Skymiles for getting the card and spending $1,000 in the first 3 months.  You'll also receive a $50 statement credit for your first $50 Delta purchase (which can be a $50 Delta Gift card).  There's on annual fee the first year, and you can cancel the card when the fee comes due in a year.  I can refer you to this offer, but there are occasionally better offers available.  If one comes up, I'll update this post.  EDIT: The Frequent Miler offers useful info on looking for targeted (i.e., better) Amex offers HERE.

After completing the required initial spending (see my posts on Manufactured Spending for tips on how to do that) you'll have 76,000 Starpoints and 31,000 Skymiles.  And additional $4,000 in spending on either Starwood card would bring you up to a round 80,000 Starpoints which could be transferred into 100,000 Skymiles, bringing you to a total of 131,000 Skymiles.  Your total costs would be (at most) the cost of manufacturing $11,000 in spending, approximately $128.  Not bad for a TATL business class ticket.

British Airways

Generally speaking, British Airways Avios program has decent award availability on their own flights.  The trouble is that they carry exorbitant taxes and fees on award flights.  For example, here's what pricing on a flight to London looks like:

Ouch!  Over $1,000.  So, this isn't the best option for travel on the cheap.  I'll try to help you deal with those taxes, though.

• British Airways Visa: This one's issued by Chase and has a great sign up offer discussed here by View from the Wing.  If you're willing to do some manufactured spending (or can put $20,000 in regular spending in the first year you have the card) you'd earn a total bonus of 100,000 Avios.  Bump your spending up to $25,000 and you'd have enough miles to cover a TATL business class ticket.  Bump it up to $30,00 in the first year and you'd qualify for a "travel together" award allowing two people to travel in business class for 125,000 miles (BUT, you pay taxes on both!).

• Barclay Arrival Card:  You can take some of the sting out of those taxes if you sign up for the Barclay Arrival+ card.  It comes with a sign-up bonus of 40,000 points for spending $3,000 in the first three months and no annual fee the first year:

• Again, I can refer you to this card, or you can find a public offer on Barclaycard.com.  If you used your Arrival card to pay the taxes on your BA award, those 40,000 Arrival points would be good for $400 towards your taxes, bringing you down to about $700.  Still not great, but much cheaper than paying for a business class ticket, or even an economy ticket for that matter.

American Airlines

If you can find availability, American's Saver-level business class flights cost 100,000 AA miles.  Flight's on AA's own aircraft don't carry excessive fees, but watch out for the BA flights that will appear in online award search results.  Those will carry the same high fees that I discussed above.  But, at least getting to 100K miles with AA is pretty easy.

• Citibank Platinum Select AA Mastercard - This card carries a $95 annual fee (waived the first year)) and comes with a 50,000 mile bonus for getting the card and spending $3,000 in the first three months.  The Frequent Miler discusses this offer, and others here, and his referral link is here.

• Citibank Business AA Mastercard - This is another small business credit card that offers a 50,000 sign-up bonus for spending $3,000 in the first three months.  Like the personal card, the $95 annual fee is waived the first year.  The Frequent Miler discusses this offer, and others here, and his referral link is here.

• Alternatively, you could get the two Amex Starwood cards discussed in the Delta section of this post.  Starwood points transfer to AA also, and taking this route would earn a total of 100,000 AA points once you include Starwood's transfer bonus.

In the near future, I'll be updating this post to add options for Lufthansa, and United, so stay tuned!