Author Topic: How to manufacture spending while earning money  (Read 16540 times)

Mississippi Mudstache

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How to manufacture spending while earning money
« on: April 01, 2015, 01:47:44 PM »
Alright, this is going to be a bit of a magnum opus for me. This month I manufactured over $6000 to hit two minimum spending requirements for ~110,000 miles, and I earned $200 in the process. The process was a *bit* convoluted, but not difficult, really. I thought I would share it, in detail, for anyone who might be interested.

The process depends on your ability to earn eBay Bucks - click on the link to read about the program in great detail. Basically, if you are an eBay user, you just need to sign up for the program. It gives you 2% back on every purchase you make on eBay - up to a maximum of $100 per transaction and $500 per calendar quarter. Several times per quarter, eBay will raise the rate to 10% back. This is when you need to strike. The eBay bucks are only redeemable on eBay, but there are plenty of highly liquid items that can be easily resold. Which brings me to the next step.

When you get an offer for the 5x eBay Buck (10% back), activate the offer, then use your rewards card through PayPal (you don't get eBay Bucks if you don't pay with PayPal) to puchase something that can be easily liquidated and ships cheaply, like discounted gift cards or gold coins. If you buy gold coins, you will need to make sure they are listed under Coins and Paper Money: Coins, and NOT under Coins and Paper Money: Bullion. Bullion is excluded from the eBay Bucks program. I suggest the 1 oz. Maple Leaf from APMEX.

The reason I went with gold coins is because it only took 5 purchases to max out my eBay Bucks for the quarter. If you go with gift cards, it will probably take a lot more purchases. On the flip side, I essentially gave up 2.5% of the potential rewards, since they are capped at $100 per transaction, and each transaction was about $1250.

Anyway, pick your poison, but don't buy anything until you sign up for Ebates. If you aren't familiar, Ebates is an online rebate site that gives you a few % cash back when you click through their website to make a purchase. (You'll also get a $10 gift card if you sign up using the referral link above) You can use it at a lot of different online stores, inlcuding eBay, Amazon, Wal-Mart, etc. For eBay, the cash back is only 1%, but when you're making a $6000 purchase, that $60 is not something you'll want to pass up.

Okay, so now let's suppose you've bought 5 oz. of gold Maple Leafs, for say, $6425. You can subtract $500 in eBay Bucks (which you can spend on more coins or discounted gift cards) and another $64.25 in Ebates cashback. Congratulations, you've just bought gold at $1172.50/oz ($35 below spot price) delivered to your doorstep!

But of course, unless gold is part of your preferred asset allocation, you'll now want to get rid of it. Good news - APMEX (the company you bought from) will buy back the gold at any time at the spot price (they'll pay about $10 more than spot if you have $10,000 or more to sell). Just call them when you're ready to sell and they will lock in the price at the time of the phone call. You can ship it back to them via USPS priority mail flat rate ($5.25) with $5,000 insurance ($65), so that takes $70 off your profits. If you're feeling exceptionally entrepenurial, you may want to try selling on Craigslist, but I was looking for a safe bet and a quick liquidation, so I went with APMEX.

Now of course, I've been using gold as my example, and the inherent problem with gold is that the price is volatile, which means that it is possible that you may actually lose money within the week that it takes to purchase the gold, have it delivered to your doorstep, and call APMEX to ship it back. But the odds are equally good that the price will go up.

If you're willing to take a little risk, the odds are on your side, since you have a buffer of $35/oz. before you lose anything ($21/oz. if your plan is to ship it back to APMEX with insurance). Of course, there's no rule that says you have to pay for the insurance, if you're really confident in USPS (I'm not). I got lucky, and the spot price went up quite a bit after purchasing, which is why I came out $200 ahead. If you're really risk-averse, then I suppose you could short-sell an equivalent amount of GLD on the same day that you buy your physical gold, and whatever happens in the interim will be a wash - you'll be guaranteed to profit (minus trading costs, of course).

Keep in mind, of course, that with most conventional manufactured spending processes you're guaranteed to lose money, and you risk having churns coded as cash advances instead of reward-earning purchases. Prior to doing this, I had been purchasing PayPal MyCash cards with $500 value at $4 a pop - losing 0.8% every time! Not only that, but I was constantly worried that PayPal would catch on and freeze my account - which is something they will do if you try to deposit a MyCash card and immediately transfer the balance to your bank. To me, it seems obvious which path is more desirable - it's the one that will usually result in a profit!

Bonus question for the tax gurus: Not considering the credit card miles, eBay Bucks, and and Ebates cashback, I bought 5 oz. of gold at $1258/oz. and sold it at $1195/oz. That's a loss on paper of $315. Can I claim it as an investment loss on my taxes? Food for thought.

Anyway, I hope this has been helpful to someone. I plan to continue doing this quarterly for as long as eBay keeps offering the 5x eBay Bucks. Good luck, and feel free to ask any questions if there's anything you don't understand.
« Last Edit: April 01, 2015, 02:14:32 PM by Mississippi Mudstache »

boarder42

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Re: How to manufacture spending while earning money
« Reply #1 on: April 01, 2015, 01:53:49 PM »
or you can just use a target prepaid redcard.  - this is free too.  you dont incur the 4 dollar fee. you speak of. and you dont risk cash advance etc. currently

though this is a nice alternative thanks for sharing.  now only if i could find a rewards card that paid me 5% cashback on ebay purchases.

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #2 on: April 01, 2015, 02:02:50 PM »
By the way, I want to make sure to give credit where credit is due: I got this idea from Guitar Brian in this thread under Reader Recommendations. The explanation was a bit unclear and it took me a a while to understand the process he was describing, but once I did, I was fascinated with the idea and determined to see if it could work. I'm happy to report that it does! However, I'm not so sure that it would be worth it to me unless I was using the spending to hit minimum spend requirements on my credit cards. To me, that's what really makes this process worthwhile. An exception would be if you really just wanted to add some precious metals to your investment portfolio. The ability to buy physical gold from a reputable dealer, well below spot price, is pretty incredible to me.

or you can just use a target prepaid redcard.  - this is free too.  you dont incur the 4 dollar fee. you speak of. and you dont risk cash advance etc. currently

Yes, I assume most people are aware of that. Redcard is not available in my area (yet), and I don't have a Target close by anyway, so I would still be paying to drive 30 minutes every time I wanted to load it. I honestly wonder how long that's going to be available. It seems that most manufactured spending options are a moving, um, Target.

SuperSecretName

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Re: How to manufacture spending while earning money
« Reply #3 on: April 01, 2015, 02:05:39 PM »
Bonus question for the tax gurus: Not considering the credit card miles, eBay Bucks, and and Ebates cashback, I bought 5 oz. of gold at $1258/oz. and sold it at $1195/oz. That's a loss on paper of $315. Can I claim it as an investment loss on my taxes? Food for thought.
don't even.  leave the IRS out of these shenanigans.

boarder42

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Re: How to manufacture spending while earning money
« Reply #4 on: April 01, 2015, 02:05:57 PM »
the other advantage here to your system is its not capped. plus if you can show a loss in gold trade.  i dont think CC bonus are taxed but i think a loss in the gold trade could offset any capital gains incured that year.

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #5 on: April 01, 2015, 02:19:25 PM »
Bonus question for the tax gurus: Not considering the credit card miles, eBay Bucks, and and Ebates cashback, I bought 5 oz. of gold at $1258/oz. and sold it at $1195/oz. That's a loss on paper of $315. Can I claim it as an investment loss on my taxes? Food for thought.
don't even.  leave the IRS out of these shenanigans.

You're broaching a topic that is often argued on this forum, so let me be clear: If I'm 100% certain of the legality of a tax deduction, I will claim it and not give two shits about whether or not you consider it ethical. If I'm anything less than 100% certain of the legality, I won't claim it. Your opinion is clear, and so is mine, so I hope that's the end of it since I would prefer not to get mired in a tangent about tax ethics on this thread.

SuperSecretName

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Re: How to manufacture spending while earning money
« Reply #6 on: April 01, 2015, 02:23:31 PM »
jeez.  i wasn't claiming ethics.  you can lie on your taxes all you want.

however, if you want to claim the loss, you should be factoring the cash back since it lowers your cost basis.

by not claiming a loss, the cost basis doesn't matter, and you could make an argument that credit card rewards are not taxable income.  But, when it is tied to a specific item, which you then claim as a loss, you throw that argument out the window.

EDIT:  It is my opinion that there is little to be gained (ok, maybe not so little, but what, 25% of your "losses"?), and much to be lost from involving the IRS.  But I MS at a much higher volume so the stakes are higher in my case.  penny wise, pound foolish.
« Last Edit: April 01, 2015, 02:26:58 PM by therivler1 »

boarder42

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Re: How to manufacture spending while earning money
« Reply #7 on: April 01, 2015, 02:37:46 PM »
how do you MS to accomplish your maximum returns Rivler?

SuperSecretName

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Re: How to manufacture spending while earning money
« Reply #8 on: April 01, 2015, 02:39:55 PM »
not to be too terse, but go here:  http://www.flyertalk.com/forum/manufactured-spending-719/

FT is just the tip of the iceberg.

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #9 on: April 01, 2015, 02:44:04 PM »
jeez.  i wasn't claiming ethics.  you can lie on your taxes all you want.

however, if you want to claim the loss, you should be factoring the cash back since it lowers your cost basis.

by not claiming a loss, the cost basis doesn't matter, and you could make an argument that credit card rewards are not taxable income.  But, when it is tied to a specific item, which you then claim as a loss, you throw that argument out the window.

EDIT:  It is my opinion that there is little to be gained (ok, maybe not so little, but what, 25% of your "losses"?), and much to be lost from involving the IRS.  But I MS at a much higher volume so the stakes are higher in my case.  penny wise, pound foolish.

Ah, sorry, I see the point you were making. I thought you were taking issue with the ethics, rather than the specter of having the IRS involved in manufactured spending. There have just been so many fruitless discussions about the ethics of various (legal) tax avoidance strategies around here, that I was hoping to nip it in the bud if looked like this was headed in that direction. Since I clearly misinterpreted the cause of your concern, I apologize for the curtness. You have a good point that the risks may not be worth the benefits. After all, I'm in the 15% bracket. Even if I "lost" $300 in each quarter, that would add up to $1200, or a tax reduction of only $180. So yes, point taken, and thanks for the clarification.

Again, I'm not even sure if it's legal, I was just posing the question. I don't believe credit card rewards or eBay Bucks can be considered taxable income, but the Ebates cashback could certainly be.

boarder42

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Re: How to manufacture spending while earning money
« Reply #10 on: April 01, 2015, 02:48:06 PM »
jeez.  i wasn't claiming ethics.  you can lie on your taxes all you want.

however, if you want to claim the loss, you should be factoring the cash back since it lowers your cost basis.

by not claiming a loss, the cost basis doesn't matter, and you could make an argument that credit card rewards are not taxable income.  But, when it is tied to a specific item, which you then claim as a loss, you throw that argument out the window.

EDIT:  It is my opinion that there is little to be gained (ok, maybe not so little, but what, 25% of your "losses"?), and much to be lost from involving the IRS.  But I MS at a much higher volume so the stakes are higher in my case.  penny wise, pound foolish.

Ah, sorry, I see the point you were making. I thought you were taking issue with the ethics, rather than the specter of having the IRS involved in manufactured spending. There have just been so many fruitless discussions about the ethics of various (legal) tax avoidance strategies around here, that I was hoping to nip it in the bud if looked like this was headed in that direction. Since I clearly misinterpreted the cause of your concern, I apologize for the curtness. You have a good point that the risks may not be worth the benefits. After all, I'm in the 15% bracket. Even if I "lost" $300 in each quarter, that would add up to $1200, or a tax reduction of only $180. So yes, point taken, and thanks for the clarification.

Again, I'm not even sure if it's legal, I was just posing the question. I don't believe credit card rewards or eBay Bucks can be considered taxable income, but the Ebates cashback could certainly be.

youre also missing the point that the loss has to go against something like i stated above be it a capital gain or some other market style gain... it cant just go against traditional income. i dont think but maybe cheddar can weigh in or one of the CPAs

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #11 on: April 01, 2015, 02:52:13 PM »
jeez.  i wasn't claiming ethics.  you can lie on your taxes all you want.

however, if you want to claim the loss, you should be factoring the cash back since it lowers your cost basis.

by not claiming a loss, the cost basis doesn't matter, and you could make an argument that credit card rewards are not taxable income.  But, when it is tied to a specific item, which you then claim as a loss, you throw that argument out the window.

EDIT:  It is my opinion that there is little to be gained (ok, maybe not so little, but what, 25% of your "losses"?), and much to be lost from involving the IRS.  But I MS at a much higher volume so the stakes are higher in my case.  penny wise, pound foolish.

Ah, sorry, I see the point you were making. I thought you were taking issue with the ethics, rather than the specter of having the IRS involved in manufactured spending. There have just been so many fruitless discussions about the ethics of various (legal) tax avoidance strategies around here, that I was hoping to nip it in the bud if looked like this was headed in that direction. Since I clearly misinterpreted the cause of your concern, I apologize for the curtness. You have a good point that the risks may not be worth the benefits. After all, I'm in the 15% bracket. Even if I "lost" $300 in each quarter, that would add up to $1200, or a tax reduction of only $180. So yes, point taken, and thanks for the clarification.

Again, I'm not even sure if it's legal, I was just posing the question. I don't believe credit card rewards or eBay Bucks can be considered taxable income, but the Ebates cashback could certainly be.

youre also missing the point that the loss has to go against something like i stated above be it a capital gain or some other market style gain... it cant just go against traditional income. i dont think but maybe cheddar can weigh in or one of the CPAs

I don't think that's right:
Quote
If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

IRS Source

beltim

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Re: How to manufacture spending while earning money
« Reply #12 on: April 01, 2015, 03:39:45 PM »
jeez.  i wasn't claiming ethics.  you can lie on your taxes all you want.

however, if you want to claim the loss, you should be factoring the cash back since it lowers your cost basis.

by not claiming a loss, the cost basis doesn't matter, and you could make an argument that credit card rewards are not taxable income.  But, when it is tied to a specific item, which you then claim as a loss, you throw that argument out the window.

EDIT:  It is my opinion that there is little to be gained (ok, maybe not so little, but what, 25% of your "losses"?), and much to be lost from involving the IRS.  But I MS at a much higher volume so the stakes are higher in my case.  penny wise, pound foolish.

Does APMEX send you any tax forms?  If they do, then they also send them to the IRS, and then you have to report it on your taxes, even if you take a loss.  Of course, if you made a profit, then you'd be required to report to the IRS even if APMEX didn't send any tax forms.

However, gold is not an investment in the eyes of the IRS.  It's taxed as a collectible, and therefore is taxed at up to 28%: http://www.irs.gov/taxtopics/tc409.html

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #13 on: April 01, 2015, 08:28:37 PM »
Does APMEX send you any tax forms?  If they do, then they also send them to the IRS, and then you have to report it on your taxes, even if you take a loss.  Of course, if you made a profit, then you'd be required to report to the IRS even if APMEX didn't send any tax forms.

However, gold is not an investment in the eyes of the IRS.  It's taxed as a collectible, and therefore is taxed at up to 28%: http://www.irs.gov/taxtopics/tc409.html

Good question. I'm not sure if APMEX will send tax forms or not. Guess I'll find out.

I think this whole line of thought with regards to tax implications is an interesting one. How would one handle the reporting of business expenses purchased with a rewards card if one is expected to consider the value of any ancillary benefits that accrue with the use of the card? Is it the opinion of the IRS that those rewards should be discounted against the amount of the expense that should be deducted? How should they be valued? How would sign-on bonuses figure in to the accounting process? Suppose I use my Barclaycard to pay for a business flight, then later decide to reimburse myself for the flight with my points. Is the flight no longer tax-deductible? What if, instead of reimbursing myself for the business flight, I instead reimburse an equally-priced personal flight? Is the business flight deductible now?

Apologies for the stream of consciousness. That line about the tax implications in the OP was nothing more than a throwaway thought; I didn't intend for it to dominate the whole thread. It's pretty easy to see why the IRS has steered clear of the whole rewards card accounting clusterfuck.

arebelspy

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Re: How to manufacture spending while earning money
« Reply #14 on: April 02, 2015, 05:07:26 AM »
Interesting idea.  I found buying gift cards much less work (and obviously no risk), but always fun to see another idea in action.
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SuperSecretName

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Re: How to manufacture spending while earning money
« Reply #15 on: April 02, 2015, 06:46:36 AM »
now that you have your feet wet, you should really look in to selling to local coin shops.  You might get a better rate, won't have to pay shipping/insurance, and they may pay you in cash.

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #16 on: April 02, 2015, 07:42:58 AM »
now that you have your feet wet, you should really look in to selling to local coin shops.  You might get a better rate, won't have to pay shipping/insurance, and they may pay you in cash.

I will probably try that next time. I made the mistake of not looking up the price of insurance before committing to sell to APMEX, and it was more than I expected. I briefly considered shipping without insurance, but that seemed foolish when I was already up $200. I was in a hurry to sell, because the price spiked yesterday after dropping for two days straight.

Interesting idea.  I found buying gift cards much less work (and obviously no risk), but always fun to see another idea in action.

Do you re-sell the gift cards, or do you use them yourself? I may dabble in gift cards next time the 5x eBay Bucks deal comes up. It's hard to lose when you're getting 11% off every purchase.

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Re: How to manufacture spending while earning money
« Reply #17 on: April 02, 2015, 07:50:59 AM »


Interesting idea.  I found buying gift cards much less work (and obviously no risk), but always fun to see another idea in action.

Do you re-sell the gift cards, or do you use them yourself?
[/quote]

This is my question too. Every time I read about MS, it seems that they end on the note, "and then you can purchase gift cards," but I always think that I would then be stuck with a bunch of gift cards I don't need all at once, in effect just moving my spending, and not really MS.

Please forgive my lack of understanding, I also don't get the Target redcard thing. I think you deposit money on the redcard using a CC, and then you go the ATM and withdraw everything you just put on there and put it back in your bank account?

boarder42

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Re: How to manufacture spending while earning money
« Reply #18 on: April 02, 2015, 08:24:16 AM »
Arebalspy is talking about the system of buying visa gift cards and then loading an account such as serve etc. then liquidating that to your bank account.

Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #19 on: April 02, 2015, 09:14:06 AM »
Ah. Well if that's the case, it's definitely easier, but doesn't have the financial upside of buying at a discount and re-selling for profit. My goal was for MS to earn me money instead of costing me money.

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Re: How to manufacture spending while earning money
« Reply #20 on: April 02, 2015, 10:18:45 AM »
Ah. Well if that's the case, it's definitely easier, but doesn't have the financial upside of buying at a discount and re-selling for profit. My goal was for MS to earn me money instead of costing me money.

The signup bonus earns the money.  I mean, yeah, the purchase earns you a small amount of money when the fee < the cash back % (so like 1% cash back on 500 CC = $5, and gift card fee is 2.95, you make 2.05/500, almost nothing -- could be better with > 1% cash back), but when you earn $500 for the signup bonus (in cash, or more in travel benefits) you don't care nearly as much, and take away the risk of value fluctuation.

To each his own.  :)
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Mississippi Mudstache

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Re: How to manufacture spending while earning money
« Reply #21 on: April 02, 2015, 11:12:42 AM »
Oh, no doubt. There's a good reason that your method is the most common way to manufacture spend. But I'm always looking to optimize and thought others might be interested :)

elaine amj

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Re: How to manufacture spending while earning money
« Reply #22 on: April 02, 2015, 12:54:04 PM »
Hmm...this is an interesting way to MS.

We credit card churn but not in a massive way and as yet have not come up with a viable MS strategy. My husband is not a big fan of the whole Serve re-load process. A lot of "normal" MS is a bit more challenging for us as we live in Canada and only visit the US every 2-3 weeks.

I am excited about Target prepaid and we will purchase our first one this weekend and see how it goes.

I haven't really thought about maximizing ebay bucks, etc though or buying/selling gift cards. This could end up being viable for us since we could sell through places like giftcardgranny.

Hmmmmm

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Re: How to manufacture spending while earning money
« Reply #23 on: April 05, 2015, 10:33:47 AM »
Be aware that any transaction over $10,000 is reported separately to the IRS, the same way that your banking transactions over 10k are reported. Treasury guidelines treat dealers in precious metals as "banks" for purposes of the Bank Secrecy Act.

http://en.wikipedia.org/wiki/Bank_Secrecy_Act
http://www.fincen.gov/statutes_regs/guidance/html/faq060305.html

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Re: How to manufacture spending while earning money
« Reply #24 on: April 07, 2015, 01:54:59 PM »
Nice write-up, Mud.

I used to come out in the black when MS'ing via PayPal MyCash cards by transferring the funds from PayPal to Serve via the PayPal Business Debit Card (earning 1% in the process, minus the 0.0079% purchase cost), but after a nine-month run PayPal did indeed shut down my account.  (The less-lucrative cash-out method you mentioned of direct-to-bank transfers is, as you described, an even quicker way to get your account frozen.)

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Re: How to manufacture spending while earning money
« Reply #25 on: April 09, 2015, 12:57:48 PM »
Evolve has been working hard lately to make their service useless. I originally planned on using my PayPal debit card through Evolve to pay mortgage, rent, utilities, etc., but they now charge a 3% fee for most debit card (and all credit card) transactions. And getting my PayPal account shut down would suck badly. I buy and sell quite a bit on eBay.

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Re: How to manufacture spending while earning money
« Reply #26 on: April 17, 2015, 01:00:27 PM »
Thought I would update this thread with the final results.

If you read through the original post, you would notice that $500 cashback comes in the form of eBay Bucks, which can (obviously) only be spent at eBay. So the story wasn't quite over -  I still had to find a profitable way to liquidate the credits. Here's how that worked out:

I ended up getting a deal on $300 worth of Exxon gift cards for only $270. I might have held onto them if we bought gas at Exxon regularly, but it would have taken us 6 months to use that much gas, so I liquidated them for $279 ($9 profit).

Next, I bought a $100 eBay gift card for $95 in eBay Bucks. I used that gift card to buy a $100 Sears gift card for $80. I sold the Sears gift card for $84 (another $9 profit).

After that, I had $135 in eBay Bucks and $20 in eBay gift cards left over, which my wife spent on supplies for her camera, which she was planning to buy anyway.

Also, I was pleasantly surprised to find out that I still earned 2% eBay Bucks and 1% Ebates credits when I was spending eBay Bucks, so I got back an additional 3% back on the $500 that I spent (another $15).

So, my total profit after everything was cashed out was in the neighborhood of $233. Bottom line: Gift card deals seem to surface pretty regularly on eBay, so it wasn't hard at all to cash out the eBay Bucks profitably.

econberkeley

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Re: How to manufacture spending while earning money
« Reply #27 on: October 19, 2016, 11:24:27 AM »
What about buying visa gift cards at staples.com going thru upromise. It only costs $8.95 per card, but cash back from upromise for each $300 card is $15. It looks great for manufactured spending. What do you guys think?

boarder42

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Re: How to manufacture spending while earning money
« Reply #28 on: October 19, 2016, 11:43:04 AM »
What is upromise

Does it have a gift card caveat. Most cash back services do
« Last Edit: October 19, 2016, 11:44:49 AM by boarder42 »

boarder42

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Re: How to manufacture spending while earning money
« Reply #29 on: October 19, 2016, 11:48:18 AM »
It appears it does otherwise it would be great paired with the ink card

 

Wow, a phone plan for fifteen bucks!