Gift card churning with $0 out of pocket cost

Update: I’ve corrected the post. As a reader pointed out that Paypal Business Debit transactions don’t qualify for 1% cash back. I misread the cash back amount on my recent PayPal statement and was under the impression debit transactions did in fact earn cash back, which is not true.

For a while now, many of you have been generating points and miles by purchasing American Express gift cards and liquidating them via PIN-enabled gift cards and Target Prepaid REDcard (aka Redbird) loads. Unfortunately, that has become increasingly difficult and expensive, with most shopping portals limiting cash back to gift cards purchased in $200 denominations. While Extrabux still offers 1% cash back on American Express gift card purchases, this method still involves spending $34.90 – $50 per $1,000 spent. Then there’s the added obstacle of liquidating these PIN-enabled gift cards via Redbird or money orders, since cashiers are becoming increasingly vigilant about enforcing the store policy of not accepting gift cards for such transactions.

With manufactured spending becoming increasingly difficult and expensive, some of you are already looking for alternatives. The next big thing hasn’t landed yet, but in the mean time if you’re stuck with excess Amex gift cards, you can liquidate them efficiently and eliminate most out of pocket costs with PayPal My Cash cards. For those who are unfamiliar with PayPal My Cash cards, they can be purchased, mainly at drug stores, in increments of up to $500. With a $3.95 fee, they’re cheaper than most PIN-enabled gift cards offered nowadays.

Of course PayPal My Cash cards aren’t PIN-enabled. Instead, you have to load them to your PayPal account. This has several advantages:

The card has your name on it

Nowadays, more Target stores are checking the cards being used for Redbird loads and forbidding anything that doesn’t have a name on it. So the Paypal Business Debit card is a great alternative. The card has your name printed on it and comes with a PIN. You’ll have no problem using it at Target.

Some Walmart associates will ask to see the card you’re using to pay for your money order

They will then inform you that PIN-enabled gift cards aren’t allowed. Additionally, the Vanilla Visa and MasterCard gift cards available at drug stores can’t be used at most stores for purchasing money orders. So you can use an American Express gift card or mile-earning credit card to purchase Paypal Reload cards instead of Vanilla gift cards. Without worrying about unloading the funds via Walmart money orders.

You can eliminate all out of pocket costs while earning miles

On a $4,000 American Express gift card order you can earn 1% cash back through Extrabux. That amounts to $40 (though be aware that some readers have reported issues with getting these transactions tracked). Currently, Extrabux has an offer code that eliminates either the purchase fee ($3.95 per card) or shipping costs ($5.95 – $8.95).

Liquidating the Amex gift cards via Paypal Reload cards would incur an additional $31.60 in fees. Once the PayPal My Cash cards have been loaded onto your account, you would use the Paypal Business Debit Card to off-load the $4,000 balance onto your Redbird card. In all, you would earn $40 cash back and incur $37.55 – $40.55 worth of fees, covering pretty much all the fees while minimizing hassle. 

You can generate an additional 2% cash back by using the Fidelity Rewards American Express credit card for the initial Amex gift card purchase. Using the Barclay Arrival Plus World Elite MasterCard instead would generate 2.2% in travel rewards, an amount that drops down to 2.1% in November.

Risks

All of that being said, this isn’t a long-term manufactured spending strategy. Paypal is notorious for shutting accounts down and withholding the funds for months. I don’t recommend going this route unless you’re ok with the possibility of getting your Paypal account shut down. You definitely should have a back-up plan for paying off that $4,000 credit card bill. 

I’ve been using PayPal My Cash cards sparsely over the past few months to liquidate Amex gift cards. It’s only this month that I’ve managed to hit the maximum $4,000 load limit. So far, there have been no repercussions, however that could well change. So I’m very quickly unloading my Paypal balance via money orders and regular spend to reduce any potential blowback.

There’s also the possibility of Extrabux not paying out the 1% cash back. But if you were to forego the shopping portal altogether, churning PayPal My Cash cards would still be a cheaper and easier alternative to other PIN-enabled gift cards.

Have you used Paypal Reload cards for manufactured spending? Please share any experiences with account shut downs in the comment section.

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