Today we’re going to have a bit of a history lesson. Our next installment: how to figure out your own manufactured spending deal.
It has slowly been revealed unto the internet masses that it is possible to increase your credit card returns–quite dramatically, in some cases–by means of something called “manufactured spending”. Now that flyertalk has an entire subforum on the topic, it’s a good time to talk about it.
What, you ask, manufactured spending? It is spending on a credit card which is not actual spending. For example, if you buy a thousand-dollar money order with your credit card, and then go deposit the money order in your checking account, then use that money to pay off your credit card bill, that’s a very simple example of manufactured spending. (Note that it hasn’t been possible to directly buy money orders with a credit card for quite some time, at least not in any widely available way.)
Readers of this blog, who it goes without saying are very intelligent, will no doubt see that the appeal of this practice is the extra credit card points it generates. How many extra points you get depends on how much you can do at one time, how frequently you can repeat the transaction, and what your costs of doing so are.
Probably the best-known example of manufactured spending was the U.S. Mint deal. In case you hadn’t heard about this yet: the U.S. Mint was required by Congress to produce dollar coins which not many people wanted. The Mint hit upon the idea of offering free shipping to anybody who bought coins. Oh, and did we mention you could buy the coins with a credit card?
So you could buy a $250 box of dollar coins for $250 and have it delivered for free. Not surprisingly, people figured out that you could just deposit the coins into your account at your local bank, and then order more coins. In some cases, a lot more coins. Here’s a Wall Street Journal account of what happened. An excerpt:
The coin program was a popular play on FlyerTalk.com, an online community where frequent travelers and mileage mavens share travel tips and profitable mileage plays. One FlyerTalker, identified by his online moniker, Mr. Pickles, claims to have bought $800,000 in coins. He posted pictures of the loot on FlyerTalk.
He says his largest single deposit was $70,000 in $1 coins. He used several banks and numerous credit cards. He earned enough miles to put him over two million total at AMR Corp.’s American Airlines, giving him lifetime platinum-elite status — early availability of upgrades for life and other perks on American and its partners around the world. He also pumped miles into his account at UAL Corp.’s United Airlines and points into his Starwood Preferred Guest program account.
What made the Mint deal extra sweet at this time was the Chase AARP card. This card offered unlimited 5% cash back for the first six months. Buy $1,000 of coins, make $50. Rinse and repeat. In retrospect, it’s surprising that the U.S. Mint deal lasted as long as it did. Those of you who want to learn a little more history can go here and here.
After that, it got quiet for a bit, until Frequent Miler became the first mainstream (I use that term relatively, as the credit card points game is not a mainstream activity, not yet anyway) blogger I’m aware of to bring manufactured spend out into the open. The scheme, which a lot of you have heard of and maybe even tried out, is to buy $500 Vanilla reload gift cards, load them onto an Amex prepaid debit card at $3.95 a pop, then drain the cash via billpay, ATM, or even just your regular spending.
It’s not as good as the mint, but it can still be very lucrative. Since you’re paying about $4 for every $500, what you’re doing is effectively “buying” points/miles/whatever for eight tenths of a cent each. If your credit card is only making 1%, then it may or may not be worth your while. But if you’re buying the Vanilla Reloads with a card that earns you 5%, as was the case until recently with the Chase Ink Bold at office supply stores or the Citi Preferred at drugstores, then it can still be very lucrative.
Most of the major retail stores that let you buy vanilla reloads have stopped allowing them via credit cards. Which brings us to our present situation: there are a lot of people who want to play this game, but after seeing a couple of big deals killed by too much publicity, most people who know how to play aren’t willing to share.
The good news is, you can figure out your own deals if you put your mind to it and are willing to work a bit. We’re out of time for today, but in our next post we’re going to show you how to think about this game and give you some useful links. We won’t be revealing any new information, just aggregating what’s already been publicly discussed in various places on the internet. There are still loopholes out there that haven’t been closed. Stay tuned!
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