When you’re trying to maximize your credit card rewards, you may find that your normal spending just ain’t cutting it. That’s where manufactured spending comes in.
Even though manufactured spending is a common term in the world of credit cards, it doesn’t have a single agreed-upon definition. But you could classify it as any spending that you do solely to earn rewards.
There are two reasons for manufactured spending:
- To meet the minimum spending requirement on a credit card’s sign-up bonus.
- To earn more rewards every month.
It’s easiest to understand how manufactured spending works by checking out the most common examples of it.
Purchasing Prepaid Debit Cards with a Credit Card
This is the truest example of manufactured spending because you’re buying something you can simply turn into cash and deposit back in your bank account. Here’s how:
- You purchase prepaid debit cards and fund them with your credit card. These debit cards are often available at grocery stores, Walmart, and other retailers. GiftCards.com is the cheapest online option. The maximum card value is typically $500. Let’s say you purchase $1,000 in debit cards.
- You use your $1,000 in prepaid debit cards to purchase a money order. Walmart is a good option for this as many locations have automated money order machines.
- You deposit your money order into your back account.
The Result – You earned 1,000 points/miles. Instead of actually spending $1,000, you only had to pay the debit card fees and the money order fee.
There are a few issues with doing this on a regular basis. The fees may end up outweighing the value of the points you collect. It’s a pain in the ass to keep ordering gift cards, converting them to money orders, and depositing those money orders back into your back account.
Here’s the real problem, though – your bank or your credit card company could shut you down for this. It’s suspicious to banks when you deposit money order after money order, and people have seen their accounts get closed for it.
Credit card companies aren’t keen on cardholders who are only in it for the rewards. If they think you’re trying to game the system, they could close your card and take all your rewards in the process.
When Should You Do It?
I’d only recommend doing this if you need to hit a minimum spending requirement or collect extra points quickly. For example:
- You need $5,000 in spending for 80,000 bonus points and you’re at $4,000 with a week to go.
- You need 25,000 points to book an award ticket and you’re at 23,000.
I wouldn’t recommend making this a part of your monthly spending routine. Let’s say you buy $5,000 in gift cards per month this way. That’s a lot of time spent ordering gift cards, buying money orders, and making deposits.
You’d get 60,000 points in a year for your troubles. Why bother when there are sign-up bonuses you could get instead?
Making Your Rent or Home Payment with Your Credit Card
- Go to the service provider’s site and register for an account.
- Enter your recipient information and credit card information.
- Enter the amount and submit the payment. Your total will include the amount plus the service charge, which is usually 2.5 percent for credit cards.
The Result – The service provider cuts your landlord or mortgage company a check. You get points instead of having one of your largest monthly expenses come straight out of your bank account.
With Plastiq, you can pay other household bills with your credit card, as well. Most utilities companies already let you use a credit card, but it’s something to keep in mind if you have one that doesn’t.
The only downside to this is the fee. You’ll spend a bit more to get those points for your rent/mortgage.
You will need to submit your payment five to seven business days before the due date to ensure it arrives on time. This isn’t a drawback, just make sure you don’t forget.
When Should You Do It?
I like to pay everything with my credit card, so I do this every month. Yes, it costs a little extra, but I’m earning points and it’s much more convenient.
I don’t need to spend time writing a check and taking it to a mail drop once a month. And I’m consolidating my bills by having them all on my credit card, making it easier to keep my finances organized.
Unlike the previous method of manufactured spending, this one doesn’t pose any risk of getting your credit card closed.
If you’re not a fan of paying extra fees, save this method for meeting minimum spending requirements.
Financing Microloans through Kiva
Kiva is a nonprofit organization that issues crowdfunded loans to low-income individuals, including students and entrepreneurs. With a normal loan, you’ll get your money back within one year. Here’s how to select and fund loans with Kiva:
- Go to the Kiva homepage and choose a loan category from the Lend menu. You can view loans by the type of loan or the region of the borrower.
- Add any loans you want to fund to your cart. The minimum loan amount is $25, or you can fund more up to the remaining amount needed on the loan.
- Go through the checkout process and submit your payment. Kiva allows credit card payments without any service fees.
The Result – Kiva sends the borrower the money once the loan is fully funded. If the borrower repays the loan, which happens about 97 percent of the time, you get your money back. You’ll earn points for all the money you lent.
Kiva doesn’t charge interest on its loans, so you won’t receive any return on your investment here. You’ll need to wait until the loan is repaid to get your money back. Although defaults are rare and you can spread your money among multiple loans, there’s still the chance a borrower defaults and you lose money.
When Should You Do It?
I’d stay away from Kiva unless you have minimum spending to meet or you want to help people in need.
If you’re going to use your money this way, you’re better off investing in peer-to-peer loans or stocks. Both can make you actual money instead of just reward points.
Purchasing Gift Cards with a Credit Card
This follows the same process as purchasing prepaid debit cards with your credit card. The only difference is that you can only use gift cards at one store.
There aren’t any significant drawbacks when you do this, but it’s pointless in most situations. You’ll earn points when you purchase the gift card, but you could’ve just used your credit card at that retailer.
When Should You Do It?
There are three situations when you’d want to do this:
- You need to hit minimum spending requirements and the gift card is for a retailer you frequent.
- A retailer you frequent is running a sale on gift cards and selling them for less than face value.
- You’re actually going to give the gift card away as a gift because you’re a terrible gift giver but cash would be too tacky.
Adding Manufactured Spending to Your Rewards Strategy
Manufactured spending can occasionally come in handy, especially if you sign up for multiple credit cards simultaneously and need to hit several spending minimums.
The only method I use regularly is paying rent through Plastiq, and that’s primarily for convenience. The others are too much work for minimal rewards. But it’s good to know what your options are if you need to create more spending than usual.