Starters Guide - Churning and Manufactured Spending

To get started with this hobby, one must know the two basic principles for obtaining points/miles.

• Churning - the act of applying for credit cards to obtain sign-up bonuses (multiple times if possible)
• Manufactured Spending - the act of artificially increasing your spending by purchasing cash equivalents (gift cards) or by some other means.

The first step is to identify what your goals are. Why are you starting to do this? Is your goal a trip to Europe? Maybe it’s to go after cheap domestic flights to visit family or short weekend getaways. Do you want to focus on hotel points for staycations? Or maybe you have been wanting to go to that luxurious private island halfway across the globe. Whatever your goal is, find out how many miles/points you need to get there and work backward from there.

After you have decided on what miles/points currency you need, you will want to decide how you will obtain those miles. Do you focus on just applying for cards and using the sign-up bonuses? Or do you want to get into manufactured spending and look for a sustainable way of generating lots of points over a longer time frame. Regardless of which strategy you choose, you will want to find a way to meet some high spending requirements by some form of manufactured spend (MS).

Manufactured Spend – What is it and how do I do it?

A couple VGCs that work with Bluebird

Manufactured spending works by allowing you to recycle your spending. Lets say you want to buy an iPad for $500.  Let's also assume you have a card that gives you 2% cash back. You could go to Apple and buy it directly and earn your credit card cash back ($10). You could also go to another retailer, buy a $500 Visa gift card and use that to buy the iPad, still resulting in $10 cash back. The beauty enters when you realize that $500 gift card can be "recycled" and put back towards your credit card, allowing you to buy another gift card, then another, and so on. This "manufactured" spending is central to the points/miles game. There are many forms of MS out there, and you need to find one that works for you. These techniques typically involve purchasing gift cards and unloading those gift cards for use with your credit card. Typically those gift cards are unloaded to a prepaid service such as American Express Bluebird or American Express Redbird (Target), and then using those gift cards to pay off your credit card. What this does is artificially increase your spend while generating credit card points/miles. An important thing to remember is these techniques are always changing, new opportunities come up just as old ones become unavailable. You must be always on the lookout for changes and new methods, because the options available today will not always be there.

What I decided to do was to sign up for a Bluebird account. This is a prepaid service from American Express. Typically it is used as a replacement for a checking account for those people that want the convenience of an online bank, without paying many fees. It is a great product and I can really see the appeal for many customers. Where it shines though is that you can load your balance (up to $5,000 a month) with debit cards. If you are able to find Visa/Mastercard gift cards with a PIN, you can typically load those to your Bluebird account and then set up a bill pay to pay off your credit cards all for the low cost of $0. Since there is a limit of $5,000 a month I got my wife’s permission and signed up for a Bluebird under her name as well. I manage both accounts, and this gives me a total of $10,000 that I can use each month to meet minimum spend requirements or to generate MS. Normally cards will require you to spend $1,000 - $5,000 when you sign up to get the bonus, but when you have $10,000 each month to play with, these requirements are very easy to meet.

Finding locations that sell Visa gift cards (VGCs) that work with Bluebird is always an adventure. Just because it has a PIN does NOT mean that you can load them to Bluebird. I have found the best ones that work for me are the variable gift cards from Frys that I can load up to $500 for a fee of $5.95 or the Staples/Office Max/Office Depot $200 cards for a fee of $6.95. If you can match a card with a category bonus, you can make a nice profit off of each purchase.

Let’s do a bit of math. Take the American Express Blue Cash Preferred card for example. This one earns 6% cash back at grocery store purchases. If you buy a $500 gift card, you end up paying $5.95 in activation fees but earn $30.36 in cash back, netting $24.41 in profit. Buy 12 gift cards and boom, there’s almost $300 for very little work.

Another good card I own is the Chase Ink Plus. This one earns 5x Chase UR points at office supply stores. I value Chase UR points at 1.8 cents each (see my mileage valuations post coming later). This means that I effectively get 9% cash back at office supply stores. Purchasing a $200 VGC means a $6.95 fee, but I earn 1035 Chase UR, a value of $18.63. Remember, these Chase UR points can be transferred to British Airways Avios, and 12,500 points gets you to Hawaii. That $300 ticket now costs ~$84 (12500/1035 = 12*6.95 = $84). Occasionally you can get discounts on cards from Staples that effectively waive the activation fees, which means those points can be absolutely free.

These are just a couple examples with a couple cards. Since there are hundreds of retailers that sell VGCs both in-store and online and hundreds of different credit cards, finding a good combination that works for you is the most fun. Yes, this takes lots of research, and no, I will not spoon feed you exactly what you should do. But I definitely can help out if you have a particular question about a certain card or strategy. For example, I am trying one technique out right now from a certain website that looks pretty promising. If it works out I will write about it in a future blog post.

Remember that Bluebird/Redbird are not the only forms of MS. You can try reselling items that you buy at a discount in-store on Amazon/eBay. You can try purchasing money orders at the Walmart money center. You can open bank accounts and fund them with a credit card. I have even heard of people using Fanduels or Draftkings to MS as they accept credit cards to fund accounts. All of these options have their own risks, but managed appropriately you can come out ahead.