A Guide to Manufactured Spending
What is Manufactured Spending & Concerns
Manufactured Spending (MS) is a way to generate spending with the goal of converting it into cash or cash equivalents (money orders, gift cards, etc) to pay off credit card debt. Thus, meeting the spending requirement needed to earn credit card signup bonuses.
MSing also has its risks; while it isn’t illegal to MS, you will be violating your bank’s Terms of Service (TOS). This could get your card shut down. Some banks are more likely to do this than others, like Amex. It’s generally fine as long as you add some regular credit card spend to reduce your likelihood of being shut down.
Visa/Mastercard Gift Cards Into Money Orders
Gift cards are a common and tried way of conducting manufactured spending. These gift cards, generally from OfficeMax, Staples, or other retailers, have promotions that reduce the activation fees down to 0. It’s also recommended that you only get PHYSICAL gift cards, as some retailers like Walmart don’t have Apple Pay and thus need a physical card to swipe.
Sometimes you will encounter both hard limitations and soft limitations. Some store employees will refuse to let you swipe gift cards. While this is annoying, being cooperative and finding a different employee at a separate hour to do it is a better course of action. Do not be confrontational when there are better ways of solving it. Other times, your gift card’s issuing bank (some big names include Intercom, US Bank, and Sutton Bank) will reject your transaction. Usually, you would have to swipe lower amounts to get around it: $ 99, 49 dollars, for example. Other times, the register will request a PIN, which is usually the last 4 digits of the gift card, or sometimes you have to create a PIN through the gift card website.
While this method isn’t perfect, it is one of the most common and tried methods in the MS playbook, and, despite being increasingly patched by both banks and stores, it is still a useful way for someone first trying to MS.
Pros:
- Tried and Tested
- Only around a 0.2% loss rate
- Very easy to do
Cons:
- Sometimes rejected by Stores
- Swipe doesn’t go through
- Credit Card can be shut down by the bank
Store Gift Cards, GreenDot, 529 Plans
One of the easier ways to fund manufacturing spending is through a GreenDot or a 529 plan. Green Dot/Gift of College gift cards have a higher loss rate due to their activation fee of around $5-$6. It’s one of the easiest ways of starting out. All you have to do is buy a GreenDot/Gift of College gift card, and you’re done!
While Gift of College gift cards can’t be deposited back into your bank account and must go into a 529 Plan (more on this in the future). GreenDot can be deposited by simply visiting their website and following the steps to redeem cash into a GreenDot account and transfer it out. While this can’t be done on a large scale, GreenDot or Gift of College will shut you down. It is a great way for someone just starting out in MS and wanting to get their foot in the door.
Pros:
- Super Easy to do
- Less likely to be rejected by stores
- Good for starting out
Cons:
- Can’t be done on a large scale
- Loss rate of 1%
Costco Gold Method
This is the method I personally use, and I would like to share it with you today. The idea is simple: use your credit card to buy gold or silver from Costco. Of course, to start, you need a Costco membership, which includes the Gold or Executive membership, priced at 65 and 130, respectively, as of writing.
To start, I would recommend the Executive membership, as its 2% cashback applies to gold and silver purchases, plus with your credit card’s own cashback, it effectively reduces the price of gold to spot or even below spot price (spot meaning market rate). At which point you can sell to gold dealers at 98% of spot online, or 99 with your local coin shop.
Also, you can split in-store transactions if needed, or buy Costco gift cards to reduce digital transactions so you can hit your credit card bonus if you are using multiple credit cards. Also understand that this only works for Visa and Mastercard (online), because Costco doesn’t accept Amex or Discover. This can be gotten around with traditional Visa Gift cards, which Costco accepts, but it is preferable that, if you do this, you find a store that sells gold in-store; that way, you don’t risk card rejection. Or you can buy Costco gift cards with it.
Pros:
- Any loss in selling gold/silver can be a capital gains write-off
- Can get gold/silver for below spot
- Can keep as investment long-term
Cons:
- Requires a 130 Membership
- Gold/Sliver price changes
- Price of Gold/silver is very high
Basic Rundown
The goal of this post is to provide some examples, explain what manufactured spending (MS) is, and provide ways that you could use MS to hit those credit card bonuses. While there are other ways to do MS, this post is meant to provide a basic understanding of MS in general, and I hope you enjoyed reading my first post on this blog.