[Article] Should I go into debt to buy cards?

"You can't be in debt and win. It doesn't work." - Dave Ramsey

Dave Ramsey offers some of the best financial advice to his audience. He has experienced it all, from over-leveraging and bankruptcy to financial hardships, becoming debt-free, and ultimately achieving financial freedom. His key principle is attaining financial peace by eliminating debt, and I fully support that. However, many people struggle because their initial financial irresponsibility leads them into problematic debt situations. On the other hand, when used wisely, debt can be a powerful tool for building wealth.

We've noticed this especially in real estate, where leveraging properties and using rental income to cover payments (with some variations) has been a traditional strategy for building wealth. It's not a get-rich-quick scheme, but over time, using other people's money (current debt) to develop your own asset portfolio seems quite progressive. However, trading cards are not real estate. They do not generate passive income or yields while you hold them. Therefore, you are not making any progress in wealth as interest on debt continues to accumulate. This is why the general advice is not to go into debt to purchase trading cards.

As an accountant and a person of finance, I have a slightly deeper understanding debt and the value of debt and I do have core principles of my own:

(1) Long term debt to finance long term asset is considered a Good Debt.

(2) Short term debt to finance short term asset is considered a Good Debt.

(3) Short term debt to finance a long term asset is considered a Bad Debt.

(4) Long term debt to finance a short term asset is Contentious.

Some illustrations here. Borrowing (term loans or mortgages) to finance real estate is considered good debt. Using your credit card to buy sports cards and resell them in the short term is fair. Using your credit card to buy a brand new car is obviously bad unless you have the ability to pay it all lump sum. So lets now focus on principle number four.

Say I offered your $10,000 to only buy any number of sports cards, and you only need to pay me back in a year plus 5% interest - $10,500 in total. What would make more sense to you:

a) One (1) BGS 9 mint copy of a 1986 Fleer 57 Michael Jordan rookie card

b) Three (3) Sealed Flawless non rookie Autograph Patch cards of Luka Doncic

c) Fifty (2) different graded serial numbered cards of staple players (Steph Curry, Lebron James, Jayson Tatum) for between $150 to $200 each.

Let's dive into the options. Firstly, there is no clear correct answer here, and it all depends on your situation and objectives.

A mint Michael Jordan rookie card will always be a good centerpiece to any collection and the price is relatively stable over a twelve month period. Problem is, when its time to pay back your loan, you probably have not gained anything and in fact probably might take a small loss for the interest as well as any potential selling fees.

Flawless Luka Doncic autograph patches present a different perspective. If you purchased this at the start of the season, you have a season's runway to determine the best time to exit. Looking back the past 2024/25 season, Luka's non-rookie cards made a quick spike right during his trade to the Lakers and came back down after. Once he got settled in roughly 10 games after he trade when Lakers made their incredible late run to the playoffs, Luka's cards went up again before coming back down after they got bounced in the first round of the playoffs. So depending how you timed the market and if you sold any of the cards during that period, you probably would have made enough to get a return on capital and interest plus abit extra for your work.

The final option is spreading your risk across several different players at much lower price point. The risk of significantly losing your original capital is extremely low but the upside isn't great either. On average for a $150 card, you are probably looking at plus/minuses per card of up to $50. Price fluctuations of certain players may cancel out each other resulting in a nett zero balance come end of the season. Also not to mention the amount of time and work to move fifty cards, versus three from the earlier scenario.

Once you grasp the above concepts, let's introduce another variable: the replacement value, which refers to selling one of your items during the loan period and replacing it with one of similar value. The first option doesn't include any replacement value due to its stable pricing. The second option, based on the trend we discussed, offers at least 1 to 2 different points to allow for a replacement value, potentially doubling or tripling your returns. In the third option, replacement value is more of frequent, possibly occurring 4-5 times but with lower profit and loss margins for each cycle. However, considering there are fifty cards to manage, you must also factor in the effort and time involved.

Nonetheless, options two and three allow you to achieve a return that is probably greater than the cost of financing, provided you are skilled in timing and can manage selling fees. This example pertains to long-term loans rather than credit cards because credit cards have a much shorter turnaround time (20 days) before you begin incurring significant interest.

In conclusion, with a good understanding of debt, it can be a powerful tool to grow your sports cards business or side hustle.