(Inefficient) Manufactured Spending to Hit Minimum Spend Requirements

In my mind, I arbitrarily divide manufactured spending into two camps: that which you do on an ongoing basis, and that which you do to meet minimum spend requirements. I don’t really do much of the former (mostly because I’m lazy, but also because I don’t have a car and live in SF where there’s a specific lack of many of the places that are critical to other people’s MS schemes), but the latter is a necessity if you want to take advantage of some of the most lucrative offers. Example: the Citi Executive AA card, which used to be incredible at 100k miles for $10k of spend, but is now still good at 60k miles for $5k in spend.

For someone like me, $5k of spend in 3 months is a lot. Unless I’m buying airplane tickets (which usually occurs in sporadic, unpredictable bursts), I probably won’t naturally hit that much credit card spending even if I put all of my expenses on one credit card, so I generally need to supplement my spending to hit credit card minimum spend requirements. But because the rewards for hitting minimum spend requirements are so much higher than normal, it’s worth it to me to pay more to accomplish these targets.

To be more concrete, for ongoing MS to be worthwhile, you generally need to get the cost below 1% or 1 cent per dollar “spent”. If it’s much higher than this, it generally isn’t worthwhile to do, since your ongoing credit card rewards are probably worth around 2% back (granted, there are many exceptions to this). On the other hand, for an offer like 60k miles for $5k in spend, you’re effectively getting 13 miles per dollar for your first $5k in spend. If you value AA miles at 1.5 cents per mile, that’s nearly 20% back, which means your manufactured spend could cost nearly 20% and you’d still be willing to do it to meet this minimum spend requirement.

Given the much higher return for meeting minimum spend requirements, you can employ different, less efficient methods to generate spend. Instead of buying cash equivalents and converting those cash equivalents to cash, you can just pay to process a credit card directly and eat the fees, which are normally around 3%.

There are numerous ways to do this, although I don’t necessarily recommend them. Here’s an example that I actively discourage: there’s a certain tech startup named after a shape that allows anyone to sign up to process credit cards, and they’ll send you a free reader that you can plug into your phone. They charge 2.75% per swipe, and the funds get deposited in your bank account the next day. If you need to spend $5k quickly, you could swipe your own credit card and pay $137.50 in fees. This isn’t worth it for ongoing manufactured spending, but it’s totally worth it to get 60k AA miles (that’s like paying 0.23 cents per mile) from the sign-up bonus. It’s also incredibly straightforward, as the money gets deposited into your bank account, which you can then use to pay off your credit card. No other intermediaries or social security numbers required.

Again, I actively discourage this approach using this specific company. I personally have never done this, but there are enough horror stories online about people getting their accounts disabled and money held for 6 months by this company that the risk isn’t worth it for most people (you also don’t really have a leg to stand on if this happens to you since this behavior is against their terms of service, so they have every right to shut you down and hold your money). However, this space has a number of competitors, and people have had success doing similar things with other companies. Tread carefully.

All manufactured spending carries risks, and you need to figure out what your risk tolerance is. Will you be okay if $5k of your money gets tied up for 6 months? $10k? What about longer? You need to answer these questions for yourself and only do what you’re comfortable with.