What Is Minimum Spend?
The term “minimum spend” refers to the minimum amount of money that a customer must spend in order to qualify for the sign-up bonus associated with a credit card. It is short for minimum spending requirement.
Key Takeaways
- Minimum spend is one of the common conditions used by credit cards when offering sign-up bonuses and other incentives.
- It requires customers to reach a certain level of spending in order to qualify for the advertised bonus.
- Various strategies have been developed by customers wishing to satisfy the minimum spend requirement without significantly altering their existing budgets.
- Credit card holders should be careful not to spend more than they can pay off quickly to avoid interest and possible fees that could outweigh the benefit of the bonus.
How Minimum Spend Works
Credit card companies often offer various incentives to attract customers to sign up for new credit cards. One such incentive is the sign-up bonus.
With a sign-up bonus, a new credit card customer earns a reward, often in cash, for signing up for the card, provided that certain conditions are met. Typically, this means spending a minimum amount in a specific period of time, such as spending $2,000 or more within the first three months of opening the account.
In practice, minimum spending requirements can differ widely from one card to the next. So consumers may wish to shop around to find a deal that works well with their existing spending practices.
Minimum Spend Workarounds
Manufactured Spending
Some consumers have found creative ways to satisfy minimum spending requirements. These strategies are known as manufactured spending. They consist of spending now on items that they'll need later or creating the illusion of spending without incurring the full cost of the purchases involved.
Examples of using such strategies to meet the minimum spend include buying gift cards for a grocery store or a gas station, or buying birthday or Christmas gifts far in advance. The customer spends money earlier on items that they have to buy in the future. In this way, they meet the minimum spend without increasing their overall spending.
In other cases, customers might meet their minimum spending requirement by making large payments on rent, car loans, or student loans.
Reimbursed Spending
A more direct approach to manufactured spending consists of simply using the credit card to make purchases on behalf of friends or family, with the intention of being fully reimbursed by them at a later time.
If the customer is especially enterprising, they might even purchase items in bulk using the credit card, with the intention of reselling them later through an online storefront.
Regardless of the method used, customers must be careful to ensure that they can pay their credit card bills in full once they're due. Otherwise, the interest charges or late fees incurred could quickly erode or even exceed the sign-up bonus.
Some card issuers may have a policy stating they have the right to cancel your card due to inactivity within a certain time frame.
Example of Minimum Spend
Michael is reviewing an advertisem*nt mailed to him by XYZ Credit. Under the terms of the ad, XYZ is offering all new credit card customers a sign-up bonus of $750. They can qualify for it by spending at least $5,000 over the first three months after opening an account.
Although Michael finds the $750 bonus attractive, he typically only spends $1,500 per month, and is therefore unsure of how he could responsibly satisfy the card’s minimum spend.
To solve this problem, Michael decides to use manufactured spending. To begin with, he notes that he typically spends $200 per month on groceries, and that roughly half of his grocery bill ($100) covers non-perishable items. Non-perishables have a long shelf life and can be bought ahead of time.
He decides to purchase nine extra months of non-perishable items over the next three months, This increases his planned grocery expenses in that time period by $900:
$100 for non-perishables x 9 months = $900.
Thus, Michael increases his overall, planned 3-month spending of $4,500 on the new credit card to $5,400:
$4,500 + $900 = $5,400
This surpasses the minimum spending requirement of $5,000 and qualifies Michael for the $750 bonus.
What Happens if You Don't Meet Minimum Spend?
You miss out on the credit card reward that can only be fulfilled by reaching the minimum spending requirement.
Does a Credit Card's Annual Fee Count Toward Minimum Spend?
No, it doesn't. Neither do any other fees you might encounter. Minimum spend involves using your credit card to make new purchases.
Is Minimum Spend Always Worth the Bonus?
Not necessarily. First of all, it should be a bonus that you actually want. Secondly, you need to be able to pay off your new balance without falling behind and racking up interest costs. An increasing amount of interest added to your card balance could quickly outweigh any reward that you earned.
The Bottom Line
Minimum spend is the amount of money that a credit card company requires a new credit card customer to spend in a particular time period in order to qualify for its advertised sign-up bonus.
There are various and creative ways to meet this minimum spend requirement. But be sure that the reward is worth the minimum spend, and that you can pay off the resulting balance on your credit card before interest charges start adding up.
