Manufactured spending has many risks: Banks can shut down your credit cards at any moment. You could accrue interest fees and take a credit score hit if you’re not paying your cards off on time. You could even lose out on your primary gift card liquidation method at a moment’s notice.
A lot can go wrong, but if you play it right, you won’t be in massive trouble down the line. Here are 6 tips for avoiding shutdowns and negative credit impact while churning gift cards:
1. Don’t Cycle Your Credit Limit
Plenty of people cycle their credit limit and don’t get shut down. Plenty others have. If you want to be on the safe side, don’t cycle your credit line. In other words, don’t max out your credit line repeatedly during a single billing period.
It can be tempting to put $10,000+ worth of Visa gift cards on a Chase Freedom Unlimited card, pay it off then do it all over again. I would advise against this.
If you’re worried about earning enough miles, pick up another card with a big sign-up bonus, use a card that lets you pay now and redeem later (i.e. Barclay Arrival Plus), or plan ahead in the future.
On the same note, you might want to avoid spending more than your annual income. Some banks will flag your account if they see you spending more than your stated annual income.
My dad got a letter framed in a concerned tone from Bank of America when the spending on his Alaska Airlines Visa got close to his stated income. I slowed down the spending and ended up closing the account when the annual fee came due. But a shutdown is always a possibility and cycling your credit limit can increase the likelihood.
2. Don’t Meet (Amex) Spending Requirements with Manufactured Spending
American Express has been known to claw back sign-up bonuses when spending requirements are met through manufactured spending. Some speculate that this is done for sign-up bonuses that were attained through targeted links. Reports have been mixed.
To be safe, I personally no longer complete credit card spending requirements with manufactured spending. Maybe that’s taking it too far, but I’d rather be safe than sorry.
3. Don’t Buy More Than You Can Liquidate
The last thing you want to do is accrue interest while earning points and miles. That’s why it’s so important to pay off your credit cards on time. Aside from knowing when your payment is due, the key to this is to never buy more Visa gift cards than you can liquidate in time for your monthly payment.
So if your Walmart isn’t MS-friendly and you’re limited to buying just $2,000 worth of money orders per day, maybe you shouldn’t stock up on $10,000 worth of Visa gift cards in a day.
Be realistic about your own time commitment to gift card churning. If you only have a few hours to spare every week and can only liquidate a small number of gift cards at a time, maybe you should buy gift cards in smaller quantities.
4. Pay Off Your Cards Twice a Month
Speaking of paying credit cards off on time, it’s probably best to do it twice per month to keep your credit utilization rate low. Make one payment before the statement closing date and another on the actual payment due date.
Why do it twice and not just before your statement closes? It’s good to show some credit utilization. Ideally, it should stay under 30%, though I’d pay it down to under 15%. By not paying your cards off completely until the due date, the credit bureaus will see that you’ve used your credit line responsibly and eventually that you paid your balance off in full.
5. Keep Close Track of Your Manufactured Spending Activity
When you’re buying gift cards in large quantities and from different sources, it can be tough to keep track of it all. It’s important to keep receipts (physical and email copies) of everything until your money orders are deposited and cards are paid off.
It can be a lot if you don’t have a method of tracking it all. I keep track of my manufactured spending activities using a simple spreadsheet and via email. It works for me. Find a system that works for you and you’ll avoid losing gift cards.
6. Always Have a Back-up Plan for Liquidation
Things can come crashing down at any time. Walmart may decide to stop accepting gift cards for money orders. Other merchants could follow suit. What will you do with $1500 – $10,000 worth of Visa gift cards? It’s important to have a back-up plan in cases like these.
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Ariana, What is your backup plan?
I have a few. I can liquidate gift cards at Kwik Stop gas stations, use the cards for retail arbitrage or I can sell excess gift cards to extended family members.
That was my question as well!
Do you mind elaborating? How does one liquidate cards at Kwik Stop? What does retail arbitrage entail?
Thank you so much in advance!