Things That Can Go Wrong With Manufactured Spending (And How to Avoid Them)

Manufactured spending takes a lot of focus, discipline, and organization. I can’t emphasize this enough to folks who read about what I do and decide, “I think I’ll start doing the same!” on a total whim. Don’t get me wrong – this hobby is rewarding and fun, but you cannot commit halfway.

You need to be good at keeping track of numbers, receipts, gift cards, credit card utilization rates, statement closing dates, payment due dates. Kudos to those who jump in in feet first, but there are a lot of ways you can shoot yourself in the foot while churning gift cards. Here are just a few things that can go wrong:

1 – Having a stack of gift cards you can’t liquidate

Did you get a little overzealous and clear out the racks at your favorite gift card merchant? Did the post office stop accepting gift cards for money order purchases? Are you completely out of ways to liquidate your huge stack of gift cards? This scenario has happened to lots of people in this hobby over the years. It’s really horrible and can put you in serious debt. The way to avoid scenarios like this is by, first and foremost, making sure you’re only buying as many gift cards as you can liquidate on the same day. Not a week from now when you’re less busy or next weekend when you’re traveling to an MS hot-spot. Today.

On the same note, it’s important to have a back-up plan. Make sure you’ve thought through what you’ll do if your main gift card liquidating source goes bust. If Walmart decides tomorrow to hard-code their registers, what will you do with ~$10,000 worth of Visa gift cards? Is there another retailer that accepts PIN-enabled gift cards for money order purchases? Always assume the worst case scenario will come to pass, and make sure you have a back-up plan just in case.

 

2 – Losing gift cards

Losing gift cards is one of the biggest manufactured spending mistakes you can make. Lose one $500 Visa gift card and you just significantly increased your manufactured spending expenses. It’s a careless mistake that can be avoided with careful bookkeeping. I don’t know that there is a foolproof way to avoid this without wasting a lot of time, but you can take steps to minimize the likelihood of this happening. I keep track of all gift card emails, receipts, and packages until every card has been liquidated and money order deposited.

I think the step where gift cards can be lost happens right after purchasing money orders. You suddenly have a stash of used gift cards and maybe even some that were not liquidated. It’s absolutely crucial to sit down at the end of your MS run and compare the receipt against the liquidated gift cards and make sure you’re not throwing out (or losing) any gift cards with balances on them.

 

3 – Theft

A few months ago, a reader contacted me saying several of his gift card orders never made it to his mailbox. He was able to track the orders and discovered that they disappeared at his local post office. If he hadn’t bothered to keep careful track of his gift card orders, he would have never caught this theft.

Ultimately, he filed a claim with his credit card company which refunded his purchase. But if he hadn’t bothered to keep track of emails and ensure that every purchase was delivered, he would have been out several thousand dollars. Avoiding gift card theft comes down to carefully tracking all purchases and following up when they are not delivered on time.

 

4 – Missed payments

Missing payment due dates is right up there with losing gift cards, though it’s not as costly (unless you do it repeatedly). Paying interest on manufactured spending pretty much defeats the purpose of this activity. Suddenly your fees increase substantially and that “free” or significantly discounted business class ticket ends up costing pretty close to retail.

I avoid missing credit card payments in two ways: 1.) I have a simple spreadsheet where I track credit card balances, due dates, and statement closing dates. 2.) I use mint.com for payment due date reminders. I personally like the spreadsheet since it makes me feel more involved, but if that fails then I know mint.com will send me a reminder so I don’t miss due dates.

 

5 – Ruining your credit

There are many ways manufactured spending can ruin your credit: Being unable to pay off a balance due to lost or stolen gift cards, missed credit card payments, and high utilization rates. A lot of people are conscious of their payment due dates and pay off their cards on time. Too many people don’t pay attention to their statement closing dates, carry large balances past this date, and end up with high credit utilization rates.

Your credit utilization rate should ideally be under 30%. While maxing out your credit line to stock up on gift cards isn’t bad in and of itself, make sure you get your balance down to less than 30% of your credit line once your statement closing date comes around. That way, your utilization rate stays low and your credit isn’t negatively impacted by manufactured spending.

 

6 – Account shut-downs

Account shut downs happen for various reasons. The most easily avoidable? Don’t use Walmart Bill Pay! I knew better and still used the service to pay off Barclay credit cards belonging to myself and family members. Less than a month later, everyone’s Barclay credit cards were shut down. People like to rag on the Barclay Arrival Plus World Elite MasterCard but I got thousands of dollars worth of travel out of that card every year.

I was able to manufacture spend with various Barclay cards for many years without any issues. Only after I used Walmart Bill Pay did my accounts get shut down. Banks don’t like payments from untraceable sources, so do yourself a favor and steer clear of them.

Other tips for avoiding an account shut-down? I don’t know that there’s a scientific answer to this but I’ve managed to fly under the radar for many years by not cycling my credit line (except with Barclays, which was very ms-friendly), not spending more than my stated annual income, and by working in some normal spending alongside MS. Normalizing your spending patterns is an important tactic in keeping your account under the radar.

These are some of the most common stories I’ve heard about things that can go wrong while manufactured spending. This is a rewarding hobby but it’s also a risky one. While I may make it seem fun and easy in my Snapchat stories, it actually takes quite a bit of diligence and organization. But as long as you establish a system that allows you to do all of this efficiently, you’ll be MS’ing for a long time.

 

Got any doomsday scenarios related to manufactured spending that you think people should be aware of? Please share in the comment section.

To join the FlyerTalk discussion on manufactured spend, head to this thread.