You can manufacture points at no net cost; should you?

On Wednesday I laid out a simple, reproducible technique to manufacture points at no net cost by using a 2% cash back credit card to offset the cost of Vanilla Reload Network reload cards purchased with a points-earning credit card.

Today I want to discuss some of my thinking behind this technique and some of the potential pitfalls.

Why I Don't Manufacture Points at no Net Cost

To manufacture 100,000 miles or points using a card that earns 1 mile per dollar spent, you'd need to buy 199 $500 Vanilla Reload Network reload cards.  Your total out of pocket cost after liquidating the cards would be $786.05. You could then use the 100,000 miles, plus taxes and fees, to book a round-trip business class award trip to Europe, which might retail for a few thousand dollars. 

To recoup that $786.05, you'd then need to buy 129 Vanilla Reload Network reload cards with a 2% cash back card, earning back $790.77.

The problem here is straightforward, and why I don't use a 2% cash back card to completely offset the cost of my points: if I don't value the roundtrip ticket to Europe in business class at $786.05, why am I paying $786.05 for it?  If I value the money more than the trip, I should just keep the money and not earn the points to begin with.  That way, I'll have $790 in pure profit.

Of course, as I discussed in my first article on travel hacking theory, I do value that award trip at more than $790, in fact, I value it at about $1,300, since that's what I'd typically pay for an economy class ticket to Europe.  For $500 less, I get to fly in business class instead.

That isn't to say that I don't use a 2% cash back card to reduce my net costs: I do, in order to achieve my travel goals while keeping within my budget.

Perpetual Points: Potential Pitfalls

This perpetual points machine has a number of moving parts, so before getting started you should be aware of the risks involved with each one.

  • MyVanilla Debit cards. This Flyertalk thread is full of reports of people having their MyVanilla Debit cards shut down with no notice after using the cards aggressively to manufacture spending. The two most common reasons seem to be using the cards for cash advances at bank tellers and ATM withdrawals, however people who do neither have been shut down as well. You can register up to 3 MyVanilla Debit cards per Social Security number, and my recommendation is to (1) spread your spending across all 3 cards and (2) don't empty your entire card balance immediately after loading. Following those two simple rules I've been able to use my 3 cards successfully for months, although that could change at any time.
  • Gobank. Gobank currently doesn't have a reported monthly swipe reload limit, and has a high, $2,500 daily swipe reload limit.  However, that could change at any time, either by instating a monthly swipe reload limit or reducing the daily swipe reload limit to the point that it's no longer worth repeated trips to Walmart.
  • Credit card companies. Frequent, high-dollar-amount purchases at drug stores could raise concerns at your credit card company. For that reason I spread out my Vanilla Reload Network reload card purchases throughout the month and over several different cards and card issuers.

Conclusion

A lot of digital ink has been spilled over the "value" of different rewards currencies (for example here, here, and here). Ultimately though, you can't use Skymiles to pay your rent or Membership Rewards points to pay your taxes. That's why no matter what your travel goals are, you should first set a monthly budget for how much you're willing to spend to achieve them. Using a 2% cash back card is a great way to keep your expenses in line with your budget while achieving your travel goals faster.

Since you can use these techniques to manufacture almost unlimited spending at a net cost of your choosing, on Monday I'll discuss some of the most potentially lucrative rewards-earning credit cards to use when doing so.