It wasn’t that long ago that gift card churning was not only free but profitable. Cash back portals would offer upwards of 4% cash back on American Express gift card orders, which not only wiped away all the fees associated with buying and liquidating gift cards, it left us with a decent profit. Unfortunately, shopping portals stopped offering cash back on American Express gift cards two years ago and ever since, manufactured spending has ceased to be completely free…for the most part. Yet, people continue to manufacture spend, often without taking fees into account.
I made this mistake when I first started manufactured spending – I was so caught up in the value proposition of earning and redeeming miles for premium travel that I completely disregarded the actual cost: $3.95 per $500 in spend doesn’t sound huge, but multiply that by 200 and the fees really add up. If you buy $100,000 worth of gift cards per year with a standard mile-earning credit card, that amounts to $790 worth of gift card fees. Factor in another $0.70 in money order fees per $1,000 and your total cost for buying and liquidating $100,000 worth of gift cards comes to $860. Some of you may redeem 100,000 miles for roundtrip business class award flights to Europe and think $860 is a bargain. However, that’s where some people fail to consider what they can actually afford…
If you’re earning miles for yourself and a spouse, that cost increases to $1,720. Bring along two kids and your expenses increase to $3,440. Even if you manage to use the miles earned for business class travel to Europe, that’s a pretty hefty sum to part with. Depending on the travel season, you could have paid less than $860 for a roundtrip economy flight and earned miles on the trip. Sure, you upgraded your seat, but can you actually afford the upgrade?
The same goes for hotel redemptions. I know people who get excited about redeeming 30,000 points per night at the Park Hyatt Paris Vendome because “I saved $1,000 per night by transferring 30,000 Ultimate Rewards points to Hyatt!” Unless you were going to spend $1,000 per night on this stay, you didn’t save anything. In fact, you may have spent $258 on gift card fees. Yes, $258 per night for a 5-star hotel that usually goes for $1,000 is great – but is $258 per night for any hotel in your budget? If all you can really afford is $150 per night, then even if spending an extra $100+ per night gets you a much nicer room, it may not be the best way to go. Too many people in this hobby get caught up in the “value” they get from spending money on miles without asking themselves whether that relatively minimal amount of cash spent on gift card fees is actually even in their budget.
I’m not trying to discourage anyone from manufactured spending, but based on some emails I’ve gotten from readers recently, I wanted to make sure I conveyed the whole picture, including costs involved in manufactured spending. This is a great hobby and while restrictions on credit card churning are pushing more and more people towards manufactured spending, you should really crunch the numbers and figure out whether earning points and miles this way makes sense for you. Ask yourself these questions: Is this worth the points and hassle? Am I getting enough value out of my points and miles to justify the cost I’m incurring on gift card fees? Is the cost incurred while gift card churning what I can afford to pay for travel?
That’s my two cents on the subject. I’d love to get your feedback – have you crunched the numbers on what manufactured spending is costing you? Is it worth your while?
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