With every bonus, reward, and benefits scheme, you can guarantee that some people will find a way to outsmart it. Credit card companies offer numerous rewards programs to incentivize spending, so it should come as no surprise that credit cardholders have found a way to rack up rewards by playing within the system, aka manufactured spending.
Cardholders can spend up to a certain amount in order to earn $200 or even $500 cash back within an allotted period of time. There are also introductory deals and travel rewards such as airline miles that correlate with how much you’ve spent. Spending at gas stations and restaurants can also boost your rewards. For many people, this can lead to overspending and increased debt. For others, this can be a way to game the system.
What is Manufactured Spending?
Manufactured spending is the process of buying items on credit that can be converted to cash e.g. a gift card. The cardholder then uses the cash to pay the bill on the card, which means he earns rewards without spending any money.
When the rewards earned are greater than the fees incurred, then manufactured spending has taken place. There are several scenarios for manufactured spending, including Amazon payments, reloads on Visa gift cards, funding bank accounts, and others.
|Example: Jane uses her credit card to buy a $250 gift card. She gets 200 points for making this purchase and then uses the gift card to pay her credit card bill. Then, she returns to the store to get another gift card for the same amount, but she uses them to get money orders. She then uses these money orders to pay her credit card bill. All in all, Jane earned 400 points without spending any money.|
If you think credit card issuers don’t know about manufactured spending, think again. There are some rules in place to keep you from gaming the system.
For a while, travel hackers used to buy reloadable cash cards at supermarkets and office stores with credit cards. Retailers have since caught on and made most cards purchasable with cash only. Companies like Chase have been increasing their limits on ways to game the system, too. They’ve created a 5/24 rule, which states that cardholders who have opened five or more cards in the last two years cannot get a new Chase card.
Why People Partake in Manufactured Spending
Manufactured spending is a way to earn points without spending money. The points can be used toward anything and some people do it to earn enough airline miles to travel around the world for free. They can also use airline miles and travel perks and redeem them for cash back.
For example, some credit cards will offer a $500 bonus if the cardholders spend $1,500 within the first 60 days. Say you’re that cardholder and you’re $300 short of the $1,500 mark. You would buy a $300 Visa gift card and then spend that card on future purchases. The fee of $6.95 is balanced out by having the $500 bonus. It doesn’t always have to be cash, because you can also get rewards in airline miles, hotel nights, and points.
To put it simply, the cardholders are gaming the system to get a reward without spending any money. It takes some work and a solid understanding of how rewards cards work, but it can be worth it.
How Does Manufactured Spending Work with Travel Hacking?
Credit cards can offer great travel rewards such as airline miles, which can reap you free trips to many far-flung destinations. By racking up thousands of airlines miles and hotel points, you can travel for a small percentage of what a full-price ticket would cost. You can rack up rewards by taking advantage of sign-up bonuses and miles from everyday spending. This means travelers can sign up for several credit cards and meet the minimum spending requirement in order to rack up their miles.
This is where manufactured spending comes in. Some cards require $3,000 of spending within three months, for example. If you don’t plan on spending that much, then you might partake in manufactured spending to help you reach the required amount. Some people have used manufactured spending to travel the world for virtually free and as the programs change the spenders find ways to change with them.
Is Manufactured Spending Legal?
Money Laundering & Stealing
Manufactured spending is more like a loophole in the system than anything illegal. You can legally take part in it, but not without consequences. Some people who buy hundreds of gift cards and try to liquidate them all at once will eventually be put on watch by the police because it’s similar to money laundering.
Some people think of manufactured spending as stealing, because you don’t need to spend anything to get something in return. This is why some credit card companies have redefined “regular spending.” They used to allow cash advances, but now people can no longer get points from cash advances.
Are There Laws Against Manufactured Spending?
There are currently no laws against manufactured spending, but some credit card issuers may have stipulations in their contracts that say you cannot partake in it. They may end up closing your account if you get caught.
Money laundering and manufactured spending use similar methods, which has caused the government to be on high alert whenever this type of activity takes place. Pre-paid gift cards have attracted attention from the government and if you conduct a cash transaction of more than $10,000, you’ll need to complete a currency transaction report required by the U.S. Treasury.
Manufactured spending can get you into some trouble if store owners or managers misconstrue what you’re trying to do. You may even get detained by the police and tangled up with the IRS so it’s not something to be taken lightly.
Some Warnings about Manufactured Spending
Be aware of a few things if you try manufactured spending:
- Some banks close accounts when there are too many money orders deposited. This can be a huge hassle.
- Some Walmarts and post offices don’t accept debit cards as payment for money orders despite there being no official policy posted anywhere. Just try somewhere else.
- Some gift cards don’t have a PIN or make it hard to get one. You might have to go online to register the card and/or call.
- Some debit gift cards will not work to buy money orders, so you may have to use them for regular spending.
How Manufactured Spending Impacts Your Credit
Credit Card Utilization Rate
Manufactured spending can impact your credit in a few ways, and everyone knows it takes time to build up credit so you want to proceed with caution. People who fail to pay off their credit card balances can end up with even more debt and worse credit. If you fail to keep your credit card utilization at 30 percent or below, then you’re also at risk for lowering your credit score, too.
Credit Card Closed Account
Also, you may be subject to having your account shut down if you take part in manufactured spending. The credit card issuer might think you’re engaged in money laundering or may want to cut off the manufactured spending before it continues.
Credit History Length
The length of your credit history affects your credit score so you need to be aware of your spending habits. If you do too much with manufactured spending in a short period of time and end up having your accounts closed, then your score will be negatively impacted especially if they were your cards with years of credit history on them.
Is Manufactured Spending Worth It?
For some people, manufactured spending feels too unethical to be okay. Others, however, see the benefit in playing the rewards game to get as much benefit as they can. And if it’s not illegal, then who cares, right? The greatest risk is to your credit score if you mess up while conducting manufactured spending or the risk of having your credit cards closed unexpectedly.
For credit card issuers, their goal is to get you to continue using their cards even after the introductory period ends. Credit card issuers earn money off of your credit card usage even when you’re not paying interest — as is the case with manufactured spending. This is because stores pay two to three percent of every transaction as a fee for credit card processing. The card issuers collect that fee. Could this be why credit card issuers haven’t worked harder or faster to close the loopholes of manufactured spending? You be the judge.
This is also the main reason that many people are against manufactured spending. It inherently includes losses to another party i.e. the vendor. As you cycle your money, they have to incur fees.
Right now, there are no quick and easy ways to get involved in manufactured spending. As one loophole opens and becomes popular, it’s also prone to be closed. The manufactured spending community is close-knit and don’t want to share their ways widely lest they risk being able to do it all together. There are simple techniques that you can find online, though, if you think it’s the right thing for you to try. You could also consider other methods to increase your credit card usage to benefit from the rewards such as paying your rent with a credit card.
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College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. (2)$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. (3)This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 1/27/2021. Variable interest rates may increase after consummation.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
Ascent: Ascent’s undergraduate and graduate student are funded by Bank of Lake Mills or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 11/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs require interest-only payments, the shortest loan term, and a cosigner, and are only available to our most creditworthy applicants and cosigners with the highest average credit scores.
*The minimum amount is $2,001 except for the state of Massachusetts. Minimum loan amount for borrowers with a Massachusetts permanent address is $6,001.