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This intro to manufactured spending is strictly for beginners. If you just got into manufactured spending or are looking to get into it, check out this post. If you have been doing it for a while, you likely will not find any new information here.
Manufactured spending is the process of buying cash equivalents (e.g. gift cards, prepaid cards, and money orders) with credit cards to earn rewards. Those cash equivalents are then used to turn back into cash.
In a simpler version manufactured spending is this:
There are two things that drive people to start manufactured spending; money and travel.
Money is easily earned from credit cards that offer cash back like Discover It. With that card, you can earn 5% cash back on rotating categories throughout the year. If you max that out you will earn $300. As an example, let say you solely bought $500 gift cards with $4.95 fees. You would need 12 to max out Discover’s 5% bonus which equates to $59.40 in fees. $300 – $59.40 equals $240.60 in profit.
Travel is earned just as easily as money is, however, it comes in the form of points and miles. Let’s look at an example with a Chase Ink Bold, which is one of my favorite credit cards. If you buy $6,000 worth of gift cards, like the example above, you would need to do it in $200 intervals with $6.95 fees to maximize your 5X multiplier at office supply stores, since that is all they sell. That works out to 30 – $200 gift cards, a total fee of $208.50, and 31,043 Ultimate Rewards points.
What can 31k worth of UR points get you? Any one of the following:
Sounds great right? It is.
Completely. You are buying cash equivalents with your credit card that you then use to pay off your credit card. That’s the same as buying product to resell and using the reselling money to pay off your credit card. There’s nothing illegal about either of those scenarios, because you’re using YOUR money to buy product. After you purchase YOUR items, you can do what you want with them.
However, that doesn’t mean it will look legal from a store’s perspective. It is very likely store clerks and/or manager’s will not let you buy gift cards or other cash equivalents at one point or another, if you decide to get in the game. Money launderers use many of the same techniques as manufactured spenders do. So, it’s important to understand that this game is legal, but it doesn’t appear that way to others.
There is a chance that a store will submit a suspicious activity report (SAR) on you, and the government will likely start looking into your transactions. SARs are a hassle and should be avoided, but they are not that big of a deal if you find out a SAR was written on you. Worst case scenario, the government will look into your finances, ask you some questions, and you will have all of your receipts and transactions to prove that what you are doing is legal.
By the way, you should keep all of your receipts if you start MSing!
While this may be legal, credit card companies don’t like it, because it does not profit them as much as they would like. There have been many reports of credit card companies closing people’s accounts and blacklisting them from ever getting new cards. This is very unlikely, but it’s a very real risk.
Ask yourself these three questions:
What is my yearly income?
If you answer somewhere around 30k or less, I would say no. If you spend even half of your reported income on a credit card, that looks suspicious to a bank and you run the risk of getting shut down.
Can I float a few hundred to a few thousands dollars for an undetermined amount of time?
You will be floating a lot of money and you need to be willing to be without it for a period of time. There is also the chance that a prepaid company will shut you down and you will be without your money for months until they send you a check.
Am I willing to risk my money?
There is a very real risk when manufactured spending. You are using REAL money that can be lost. What happens if you lose a $500 gift card?
After asking yourself those questions, it’s up to you to decide if manufactured spending is something you want to participate in. This is NOT a game for the light-hearted. It requires a lot of work and it will take a lot of your time, so be prepared.