I share my weekly manufactured spending activity pretty regularly on this blog. It helps me track how many points I’m earning at what cost and gives readers an idea of how it’s done. That being said, I don’t think these posts directly address the risks involved in manufactured spending.
I have on occasion shared how I’ve adjusted my MS activities post-shutdown, but the topic deserves its own post. Here are five risks you should be aware of when it comes to manufactured spending:
Credit card shut-downs
I’ve covered credit cards that are safe for manufactured spending but the fact is, there is no such thing. At any moment, your accounts could get shut down. It happened to me after I used Walmart Bill Pay with my Barclay credit cards. I was subsequently shut down after years of unobstructed manufactured spending.
I know people who maxed out the 5x office supply store bonus on the Chase Ink Plus Card in two months without consequence. Then I had one reader who got shut down after carefully planning out his spending across 12 months. Credit card shut-downs can happen at any time when you’re manufacturing spend and it could have negative repercussions.
You’ll lose your credit history and your utilization rate might increase. You may get banned from getting new credit cards with the bank that shut you down. If you have a checking account with the bank, that might also get shut down. That can cause further hassles if you’re regular banking activity (mortgage payments, automatic credit card and bill payments) are tied to it.
Interest fees
When you’re buying gift cards in large quantities, it’s important to be able to liquidate them quickly. If you don’t do it in time to pay off your credit cards or you simply forget about the due date, you could be on the hook for hundreds of dollars in interest fees. Rewards cards, especially, tend to have higher interest fees than other credit cards. The potential for financial penalty is even greater.
Make sure you’re subscribed to alerts so your bank notifies you when payments are due. But don’t rely on that exclusively – use apps like mint.com as an added layer of protection. In addition to these tools, I also use a simple excel sheet to keep track of credit card payment due dates and other activities.
Ruining your credit
While it’s important to pay off your credit cards on the specified due date, it’s equally important to keep a low utilization rate when your statement closing date comes around. That way, if you max out your credit card on $1,000 Visa gift cards at Simon Mall, it doesn’t negatively impact your credit score.
On the aforementioned credit card spreadsheet, I track both the statement closing and due dates on all my credit cards. For example, the due date on my Citi Premier is the 28th while my statement closing date is the 2nd.
After paying off the card on the 28th, I don’t use it again for big gift card purchases until after the statement closing date. That way, my utilization rate stays nice and low – ideally under 30%.
Lost gift cards
After reading Rick’s recent post about losing gift cards, I was really surprised by the number of people who had lost gift cards or money orders without their knowledge. As organized as I am, it makes me wonder whether it’s happened to me. This is a definite possibility when you’re juggling tens of thousands of dollars worth of gift cards.
I’ve written about what to do about stolen gift cards, so keep that in mind in case you do (knowingly) lose one. And have a back-up plan in place: If you can’t afford to lose a $500 Visa gift card or $1,000 money order, reconsider manufactured spending as a way to earn miles. It could end up costing you more than you can afford to spend on travel.
Debt
What’s so scary about Rick’s lost gift card post (and comments) are the instances where people didn’t realize they lost gift cards and money orders. Until they turned up. If that happens to you and you don’t have the funds to pay off your credit cards, you might end up in debt without realizing why.
Even if this doesn’t happen to you, you can still get into debt if your gift card liquidation source runs dry and you have no back-up plan. What happens when you have $10,000 worth of Simon Mall gift cards and Walmart decides to shut you down?
Last week, a few people reached out to me when our mutual Walmart briefly implemented a $2,000 limit on money orders. They were scrambling for an alternate place to buy money orders or prepaid cards to help them unload excess gift cards.
It’s always good to have a liquidation back-up plan before something like that happens. Otherwise, you might find yourself in serious debt when all you were trying to do was earn some discounted travel or generate a little extra cash back.
Takeaways
Manufactured spending is rewarding but could pose serious risks to your credit and finances. Be careful, meticulous in your tracking and have a back-up plan in case anything goes wrong.
Are there any risk you all want to add to the list?
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