Top Ten Ways to Manufacture Spend (Part XII)

 

12. Buying and Returning

 

Let’s start with this: This is the sleaziest method of earning points.

 

But if we really look closely, you might find it isn’t that much sleazier than all of the other methods. At this point, it’s probably time we stop and ask ourselves, “Who really pays for all these points and miles we’ve been earning?” The answer, in most cases, is both banks and merchants.

 

When you earn a large pile of points as a sign-up bonus or for meeting a minimum spend requirement the majority of this comes straight out of the bank’s purse, although banks negotiate good rates for purchasing airline and hotel miles from their partners because they purchase so many of them.

 

But when spending is manufactured through the methods discussed in this series, the hit is really split right down the middle among the credit card banks and the merchants from whom we buy these prepaids. Take a 5% category bonus as an example. When I buy a VR at a CVS for $503.95 with my now extinct Citi ThankYou Preferred 5x, I earn 2520 TY points. I value these at $25.20 because that’s what I can easily get when I redeem them for gift cards. But what happened behind the scenes? The answer is that CVS was charged for about 2% of the transaction because this is the standard credit card fee for merchants. That’s about $10 of the $25.20. The remainder is coughed up by the bank.

 

Banks know that category bonuses and sign-up bonuses will be their loss leaders. They hope that users will make up for category bonus spending by regular spending and everything else is more than covered by the predatory interest fees that are charged to users who keep a balance. People like myself are highly unprofitable for these banks. I have churned somewhere near a half a million dollars through credit cards and haven’t paid a cent of interest. But these banks will continue to issue me new credit cards and more credit. The more rope they give you that you don’t hang yourself with, the more rope they try to give you so you do. It’s impossible for them to know that no matter how much credit they give me, I will never pay a cent of interest.

 

The picture on the merchant side, however, is a bit more puzzling. I just don’t see why CVS continues to take credit cards as payment for Vanilla Reloads when they know they are paying more in merchant fees than they are recouping from the $3.95 fee. Amazon Payments is even worse because they don’t make a cent of revenue if you keep payments below $1000 a month. I can only justify these situations by the explanation that we are currently living in the “Golden Age” of manufactured spending. These business have decided that it’s worth it to them to take a little loss they get you in the habit of shopping with them or using their service. I can’t believe this will last forever.

 

The method I am about to cover is extremely sleazy to me because it puts the entire burden on the merchant. When goods are purchased and then returned, the bank gets its merchant fees and the merchant doesn’t make any profit. If a category bonus is earned, the bank still pays some, but the difference is that they are making some revenue from the transaction while the merchant is making none. It’s with hesitance that I reveal this method but I do so because others have already covered it and I believe in full disclosure.

 

Buying and Returning at Costco

 

I love Costco. I buy all my groceries from Costco as well anything else I use that they sell. I buy my gas from Costco and everything I need for my car like tires. They are my favorite store and one of the best run American businesses. For these reasons, I have not used this method but I know it can be done.

 
Costco only accepts American Express cards. Before I mistakenly believed that they only accepted their co-branded Costco TrueSavings American Express card, so I signed up for one. Then I realized they accepted all Amex cards, so now I use my SPG card for purchases in store and the Costco Amex at the pump because it gets 3% on gas. By the way, this is still usually cheaper than using a card that gets 5% back on gas at other gas stations because Costco’s gas prices are usually much cheaper than other gas stations to begin with.

 
While Costco only accepts Amex in store, they accept Visa and Mastercard as well online. They have no way to put a charge back on a Visa or Mastercard if you return an item to a store that was bought with a Visa/MC.

 

  1. Buy merchandise at Costco.com with a Visa or Mastercard that earns points or miles. Don’t buy diamond rings or other jewelry. Buy small expensive items with very small shipping fees.
  2. Return merchandise at a Costco store.
  3. Explain that you paid with a Visa or Mastercard and have them write you a check.
  4. Deposit check and pay off credit card bill. Net points/miles.

 

Top Ten Ways to Manufacture Spend (Part XI)

 

11. Kiva Loans

 

Cost: Opportunity Cost of Using Lending Club or a CD instead

Difficulty Level: Easy

Possible Category Bonuses: Charity

Required Tools:  None

Limit: Unlimited

 

This method is easy for all to use but only attractive for some. Kiva is a microlending organization that allows contributors like you to lend money to entrepreneurs all over the world to aid with their start-ups. The payback period is somewhere around 6 months and their website boasts a very low default rate of only 1.01%.

 

Part of the reason Kiva has such a low default rate for their loans is because they have a Field Team that researches loan candidates and builds their online profiles, weeding out any candidates they deem fiscally irresponsible. The lender then chooses which loans they want to give based on the profiles and the total amount loaned by one person to another only totals about $25. This diversifies your lending portfolio and thus decreases default risk even further.

 

Kiva is attractive to borrowers as well because of the very low interest rates. Kiva, unlike other microlending sites like Lending Club, charges no interest that is passed on to their lenders as profit. The only interest that is charged to the borrowers is kept by the Field Team for their efforts and as a hedge against currency fluctuation (if the borrower is in a foreign country.) So why lend through Kiva? If you’re OK keeping your money tied up for months at a time, why not simply invest it? Or lend through microlending sites like Lending Club where significant profit can be made? (Mr. Money Mustache boasts a lifetime record of 13.52%!)

 

The answer is because they accept credit cards as loan seed money! If you can do without the money for a few months and have a tolerance for a little risk, you can fund loans through your credit cards and easily satisfy any minimum spending requirements.

 

Can I use this method as a continual source of points earning, aka manufactured spending? You can but my advice is that you shouldn’t. If your intent is to use Kiva as a long term method of earning points through manufactured spending, you are way better off investing through Lending Club or buying a CD (even with the crappy rates CDs currently offer!)

 

Even with the category bonus of charity, which to my knowledge is only offered by US Bank (5% if selected as a category for the Cash+ card and 3x points on FlexPerks card) you are still better off earning 10+% through Lending Club (although I will admit, 5% beats crappy CD rates.)

 

But for a quick way to meet minimum spend requirements, which can offer upwards of 30% if the return is annualized, there is no easier way than through Kiva Loans! Just make sure you have enough money in your bank account to pay off your credit card and go without being repaid for ~6 months. You also have to have a mild tolerance for risk and be ok with 1% of your borrowers defaulting.

 

To recap:

  1. Loan through Kiva using your credit card as payment.
  2. Pay off your credit card using personal funds.
  3. Retrieve your Kiva investment ~6 months down the road.
  4. Replenesh your bank account.

 

As an added bonus:

You get to feel warm and fuzzy for helping an entrepreneur and for saving them from the predatory loans offered by other lenders!

Reader Question: How do I keep my AirTran credits from expiring?

 

Each mileage program has different terms and conditions for their miles expiring. These days most miles will not expire as long as there is some sort of account activity within a 12-24 month period, depending on the program. Basically, you need to earn miles in some fashion, every so often, or you will lose your miles stash.

 

The good news is that there are many ways to generate miles and thus you should always be able to keep your miles from expiring.

 

To generate account activity you can:

  1. Make a purchase through the airline’s shopping portal
  2. Take advantage of frequent mileage-earning promotions that tend to include completing surveys or “liking” the airline on Facebook.
  3. Enroll in the airline’s Dining Rewards Network and eat at an in-network restaurant.
  4. Put a purchase on an airline’s co-branded credit card.
  5. Pay for a flight and fly it……Okay I’m definitely kidding here, but this is definitely what the airlines want you to do!

 

All of these methods will generate account activity and will therefore keep your miles alive. The key is to make sure you don’t let an account go inactive for too long without you knowing. For this, again I recommend Awardwallet.com. Besides being the most useful free app for keeping track of all your mileage account balances, it also notifies you when your miles are getting close to expiring!

 

While most of these methods require you to shell out a small amount of money and make some sort of purchase, there currently exists a way to extend the life of AirTran credits without paying a cent.

 

All you have to do is convert your AirTran A+ Credits into Southwest credits and then transfer them back!

 

For more information, see this page.

 

Until the AirTran/Southwest merger is complete, they are letting you transfer credits back and forth between programs. Lucky for us, it also resets the expiration date!

 

If you leave the AirTran credits converted as Rapid Rewards credits, these will be different that Rapid Rewards Points which is their newer program. RR points are worth a standard 1.7 cents per mile so the cost of an award varies with the going rate. RR CREDITS, on the other hand, are like AirTran credits in that you need 8 of them to redeem for half a Standard Award (one way trip) or 16 credits to redeem a full Standard Award (round trip) and the cost of the ticket does not matter. RR credits are also subject to availability and blackout dates while RR points are not.

 

Bonus

 

Furthermore, you should never pay more than 19,200 RR points for a Southwest roundtrip flight (or 9600 for a one way) as long as there is availability for Southwest Standard Awards because you could transfer 19,200 RR points into 16 AirTran A+ Credits and then transfer them back into 16 Rapid Reward Credits (a Standard Award.)

 

Oh and one more time:

Sign up for Award Wallet!

 

 

 

Update on Manufactured Spending Series

 

It’s been a crazy couple of months for manufactured spending!

 

Since I started this series over 2 months ago, there has been an unprecedented flurry of opportunity for those practicing manufactured spending. For those of you who are new readers, manufactured spending is the process of deliberately increasing credit card spending by purchasing cash equivalents so that you may harvest lucrative credit card points while doing minimal damage to your wallet.

 

When I set out to rank the top ten methods of doing this, I didn’t plan on it taking this long! While I could cite plenty of weak reasons for these delays, the most honest reason is that I’ve been too busy manufacturing spend myself!

 

Now that I’ve finally knocked out ten methods, it seems that the list may not be properly ranked anymore!

 

For one, I regret to inform those that may not already know that Chase is no longer offering fee-free gift cards online. This is a bummer but there was really no way this one was going to last. So my previously ranked #2 method is now dead.

 

Also, Gobank has begun to really crackdown on manufactured spending and is shutting down people left and right. In the past month, I’ve had 3 Gobank accounts shut down with load/unload practices varying from conservative to very aggressive. I am now in the camp of recommending the kamikaze method that I describe in this post.  Just be aware that when you first unload your card (execute your first bill pay) I think this is when you really start getting some heat. It may be most profitable to load your card as much as possible before withdrawing any. Still, I think about $10,000 is all anyone should reasonably expect to flush through a single Gobank card so I think this method drops from the ranking of #7.

 

On a positive note, there are at least 2 other extremely profitable MS methods that have transpired over the past month! And one of them is a GAME CHANGER!! In this game it is very often true that when one door closes, another opens.

 

So over the next couple of weeks, please bear with me as I extend my list to 14 methods. I am going to finish writing about every method I know, and then re-rank them and post them in the top right tab titled “The Prince’s Scheme Playbook“. I plan on saving the best for last, so keep reading!!!

Top Ten Ways to Manufacture Spend (Part X)

10. Visa Buxx

visabuxx

Cost: See Details Below

Difficulty Level: Hard

Possible Category Bonuses: None

Required Tools:  Either (or both) Visa Buxx cards, Nationwide or US Bank

Limit: See Table Below

 

The Visa Buxx program was designed as a way for parents to load money onto linked cards for their teenagers so that they could teach their adolescents about responsible spending. They are both essentially prepaid debit cards.

 

Aww….  Too bad for Visa Buxx we’ve already mastered responsible spending and have now moved on to manufactured spending!

 

There are two kinds of Visa Buxx cards, Nationwide Visa Buxx and US Bank Visa Buxx. These programs are similar, but different enough that they must be evaluated separately. But overall, the manufactured spending method for both is as follows.

 

1.)    Load Visa Buxx card. Your US Bank Visa Buxx card can be loaded online when you log into your account. But don’t use a Citibank credit card because you could be charged a cash advance fee! Don’t use a US Bank credit card when loading a US Bank Visa Buxx card either because you won’t earn points! There are different load limits and fees for each card.

2.)    Liquidate Visa Buxx card. You can do this a few ways. You can:

  1. Use your Visa Buxx card for spending. But why would you do this when you could have just used your credit card?!
  2. Buy Money Orders at Walmart and deposit them in your bank account. $0.70 per MO at Walmart.
  3. Withdraw cash at ATMs. The fees and ATM limits differ between the two options.
  4. Get cash back at thousands of locations (Nationwide only). After you make a purchase at places like grocery stores, you are often asked whether you’d like cash back. You can usually even buy something as small as a pack of gum and get cash back. These places do have limits though. Walmart, Whole Foods, and Rite Aid all have $100 cash back limits.
  5. Load to Bluebird or GoBank accounts.

 

Fees and Limits

Nationwide US Bank
Daily Load Limit  $                      500.00  $                      500.00
30 Day Rolling Load Limit  $                    1,000.00  $                   2,000.00
Max Balance  $                    1,000.00  $                   2,000.00
Load Fee  $                          2.00  $                         2.50
PIN Transaction Limit $800/ 7 Days  $                   1,000.00
ATM Fee $1 at Moneypass ATMs Free at US Bank, $1.50 everywhere   else
ATM Limit $200/ withdrawal, 200/ 7 days $200/ withdrawal, 3 withdrawals/   day

 

Note that the ATM fees DO NOT include fees imposed by the bank that owns the ATM. These are the fees by your Visa Buxx card provider.

 

Another difference between the two cards is that for the US Bank version, you must have two social security numbers. One for the “parent” and one for the “teenager.” But don’t worry, neither person has to actually fit the title!

 

If each card is maximized, this will lead to a cost of 0.9 cents per point for the Nationwide card and 0.25 cents per point for the US Bank counterpart for a grand monthly total of $3000 of spending. This is assuming you unload your money through at the cheapest ATM options.

 

Because of the higher cost per point, these methods rank much lower on my list. They are very useful, though, for meeting minimum spending requirements especially if you do not want to use up your other method quotas because you have other credit cards that could earn category bonuses for them (i .e. you don’t want to waste your monthly Bluebird quota of $5000 on meeting a minimum spend requirement for a new card because you could instead use a card that gets a drugstore bonus to buy $5000 of Vanilla Reloads and just use the Visa Buxx to knock out the minimum spend on the new card.) Hope that makes sense!

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