Manufactured spending lets you qualify for the introductory spending bonuses on credit cards without depleting your financial reserves. Instead of purchasing traditional goods or services to meet the necessary thresholds, it involves buying things you can turn back into cash, which you can then use to pay your credit card bill.
Manufactured spending can net you hundreds, if not thousands, of dollars in rewards. However, there are risks involved, so don’t rush into it without knowing how it works. Here’s what you should understand about the process to decide if it’s right for you.
In this post:
How Manufactured Spending Works
One of the primary ways that credit card companies attract new users is to offer lump-sum sign-up bonuses. These usually promise an enticing reward of points, cash, or miles. All you have to do is hit a certain spending level on the card within a brief introductory period.
👉 For example: in 2021, the Chase Sapphire Preferred card offered a whopping 100,000 in bonus points if you spent $4,000 on purchases within the first three months of opening your account. That’s equal to $1,250 toward travel through the Chase reward system or $1,000 in cash.
As you can see, there are exciting rewards to be had. A $1,250 travel credit could easily cover a round-trip flight to a tropical destination of your choice.
However, not everyone can afford to spend $4,000 on their credit card in three months. That works out to $1,333 per month, and you might have difficulty hitting that number without inflating your spending.
Credit card companies are hoping you’ll go out and buy that new flatscreen TV you’ve been thinking about or make some other big purchase to get you over the hump. They stand a better chance of making money off interest on your balance that way.
Of course, while that’s good for them, it’s terrible for you. Credit cards carry an average interest rate of 16.16%1. If you overstretch and get stuck making an $80 minimum monthly payment indefinitely to pay off a $4,000 balance, you’d pay a whopping $2,564 in interest before you finished.
Enter manufactured spending. You can use it to cover the difference between your natural spending levels and your credit card reward threshold. Or, if you’re more ambitious, you can use it to cover the entire amount, so you don’t ever have to worry about spending too much.
Once you’ve reached your spending requirement, ideally generating additional cashback rewards or points in the process, you can use the money to pay off your credit card balance.
Manufactured Spending Strategies
Manufactured spending strategies tend to shift over time. When they become too well known, credit card companies or other third parties involved may feel like people are abusing the system. At that point, they may step in to limit a technique’s effectiveness.
Fortunately, there are countless ways to manufacture spending, and people find new ones all the time. Once you understand how others do it, you’ll start to see opportunities yourself and learn to create your own strategies.
The best techniques are:
- Easy to complete repeatedly without calling undue attention to yourself or breaking any rules
- Inexpensive enough that you don’t diminish your rewards by paying unnecessary fees
- Reliably executable so you can confidently liquidate on the back end
Here are some examples of tried and true strategies that meet these requirements. They’ll give you a better picture of how manufactured spending looks in practice.
Prepaid Visa and Mastercard Gift Cards + Money Orders
One of the classic methods for manufacturing spending is to buy Visa and Mastercard gift cards and use them to pay for money orders payable to yourself.
You’ll pay a small activation fee for the gift cards, usually somewhere between $5 and $10, but you typically won’t face any charges for buying them with a credit card. Credit card fees are the bane of manufactured spending.
👉 For example: if your landlord allows it, there’s often a fee of around 3% of your bill to pay your rent by credit card. At that rate, to reach a minimum spending threshold of $4,000, you’d pay $120 in fees, significantly eroding your potential reward. Buying gift cards is a way to avoid getting hit with these types of costs.
You can usually find the lowest activation fees for gift cards at grocery stores. Depending on your credit card terms, that may also let you leverage a category bonus.
For example, your card might offer additional points or discounts for spending at grocery stores, restaurants, and gas stations. You can also buy cards online through sites like GiftCards.com, but it’s typically more expensive.
An important thing to keep in mind when using gift cards for manufactured spending is that your credit card issuer may decide to treat the transaction as a cash advance. That would trigger significant additional fees and interest, which you want to avoid at all costs.
Some ways to prevent that problem are to:
- Buy your gift card in the same transaction as your grocery run
- Turn off cash advances with your credit card provider
💡 Tip: You should also ask the gift card seller whether their gift cards show up as a cash advance or a purchase before you buy to be safe.
Once you have your gift card in hand, you can use them to purchase a money order that you make out to a bank account in your name. Money orders are like prepaid checks, which means you can deposit them directly into a bank account.
Funding Bank Accounts
When you open a new bank account, you need to deposit a minimum amount of money into it to get started. Usually, people do this by depositing cash, depositing checks, or making electronic transfers. However, using your credit card instead is one of the easiest ways to manufacture spending.
Unfortunately, banks have been cracking down on this strategy for years. Most limit the amount you can fund to a relatively low dollar amount or disallow it entirely. If the transaction does go through, it often registers as a cash advance anyway.
If you’re going to give it a try, make sure you thoroughly research the bank and credit card in question first. Even then, you might end up triggering cash advance fees, so be prepared.
📗 Learn More: Credit cards are powerful tools, but only if you know how to use them. Find out our favorite tips for wielding them well: How to Use Credit Cards Wisely: 11 Rules to Live By
The Legality of Manufactured Spending
Manufactured spending is legal. No law says that you can’t use your credit card to pay for things like gift cards, money orders, or bank accounts to get your credit card rewards. In fact, credit card issuers are well aware that they’re taking a risk by offering these incentives.
All financial institutions know there will be some people who manage to game their system. They’re just confident that they’ll still make a profit on average. That should tell you something about the dangers of manufactured spending.
However, while manufactured spending is not illegal, it is frowned upon. Financial institutions and vendors consistently revise their terms and conditions to block manufactured spending strategies. That’s why techniques typically become obsolete over time.
In addition, if your financial institution gets wind of your manufactured spending tactics or decides that your behavior is suspicious, they may lock or even cancel your account at any time.
It’s a good idea to create accounts at separate banks for your manufactured spending. You don’t want to risk losing access to the funds in your primary checking account or ruining the relationship with your bank over a $500 credit card reward.
Relation to Credit Card Churning
Manufactured spending is closely related to credit card churning, which is the process of continuously opening up credit cards, qualifying for the rewards, then closing them to avoid annual fees.
The most dedicated churners regularly open up dozens of cards per year. They can generate impressive rewards, but the only way to sustain that much spending without going broke is to manufacture it.
Unfortunately, the more often you manufacture your spending, the more likely you are to run into the risks involved, such as:
- Being unable to liquidate your intermediary step back into cash
- Triggering a cash advance fee or racking up interest
- Getting your bank account locked or your credit card canceled
Even if you don’t manufacture your spending, banks often take steps to prevent credit card churning. For example, Chase’s infamous 5/24 rule will block your application for any of their accounts if you’ve opened five others, regardless of the institution, in the last five months.
📗 Learn More: To get a more comprehensive understanding of credit card churning, check out our analysis of the strategy: Credit Card Churning: What Is It and Is It Worth It?
Know the Risks and Start Slow
Manufactured spending has the potential to be highly lucrative, and the lure of easy money is powerful. However, the potential downsides are also substantial, especially for people who repeat the process multiple times as a part of their credit card churning strategy.
👉 For example: Even if you churn properly, there can be significant implications for your credit. Every time you open up a credit card, you add a hard inquiry to your credit report. Too many of them, especially in quick succession, can significantly harm your credit score.
Even worse, if you make a mistake while churning or manufacturing spending, it can quickly wipe out your credit card reward and snowball into a significant expense. For example, cash advance fees can be as much as 5% of the amount advanced and carry an interest rate even higher than the base rate for traditional credit card balances.
If you’re going to engage in manufactured spending or credit card churning, make sure you know the risks and take steps to mitigate them as much as possible. Do your research, and make sure you have the financial resiliency to withstand an attempt gone wrong.
What’s your #1 advice for people looking to practice manufactured spending? Share your thoughts in the comments below!