Black Friday is coming – Avoid falling into the debt trap with a few simple calculations

Black Friday is coming, but this year especially it may be best to avoid those ‘wants’ you can’t afford, even if you feel like you deserve to spoil yourself after a difficult year financially.

It’s important to resist temptation and by no means let advertising trick you into digging a deeper debt hole for yourself.

South Africans face continuous challenges, frustrations and inconveniences, such as load shedding and water restrictions, fuel and grocery price increases and repo rate hikes to name a few.

Aside from experiencing increased emotional, physical and mental strain in recent years, their financial woes do not appear to be going away anytime soon.

“Therefore, you the consumer, must be careful when participating in any upcoming online or in-store ‘shopping bonanzas’ simply because you ‘can’ or ‘want’. Stand firm and do not get tricked by various marketing gimmicks luring you in with a: ‘Get early access…’, ‘Be the first to receive our special discounts…’, ‘Prepare for massive deals coming soon…’ or ‘This week, every day is Black Friday…’ message,” says Carla Oberholzer, spokesperson and debt adviser at DebtSafe.

“If your debts are already excessive compared to your monthly income, you will only be digging deeper into a debt hole when participating in Black Friday or relating upcoming events. Therefore, I recommend that you do not shop until you drop, but rather lessen your debt and return to financial freedom instead.”

Oberholzer says DebtSafe’s 2022 research results indicates that it is clear debt consumers are mainly in arrears with retail credit and therefore she recommends that consumers calculate their debt-to-income ratio before they consider spending money they did not budget for or do not have.

“When it comes to keeping those money situations ‘under control,’ proper debt management is now crucial more than ever.”

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What is a debt-to-income ratio?

Your debt-to-income ratio (DTI) is essential to manage your debt. Oberholzer explains it compares your monthly income amount (gross – before deductions) with how much you owe (the total amount of your monthly debt obligations, such as rent, a home loan, credit cards, car payments and store accounts).

To calculate your debt-to-income ratio:

• (+) Add up all your monthly debts
• (÷) Divide your total debt amount by your income amount before any deductions (gross salary amount) & (x) multiply it by 100
• (=) The final percentage (%) determines your debt-to-income ratio.

Oberholzer advises that you continually do the calculation to make informed choices before spending your hard-earned money or when you want to use credit (the bank’s money).

“A low debt-to-income ratio demonstrates a favourable balance between your debt and income. In contrast, a high percentage highlights a riskier situation due to debt exceeding your gross income amount.”

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0-20% debt-to-income ratio category for Black Friday

Your debt, compared to your income amount, is considered good. Therefore, you can continue to maintain your financial situation and should you feel like participating in the upcoming shopping shenanigans, remember:

• Do your research well and ensure that what you buy is a real special, that your budget will allow it and that the item is not considered a want.
• Since you will do your research regarding prices and items beforehand, there is no need to visit various stores, such as malls or online stores to trick you into buying more than you can afford. Instead, outsmart retailers and stick to your budget to keep your debt under control. Then, only buy what you need, get out and stay out of the shops or avoid online shop sites.

21-40% debt-to-income ratio category

Your debt amount compared to your income reflects a moderate financial position. Therefore, consider making minor budget and lifestyle adjustments to lower your overall debt amount.

41-60% debt-to-income ratio category

Now you are moving into risky territory. Consider making significant adjustments to lower your overall monthly debt amount. Participating in any upcoming ‘sale’ events or unplanned shopping sprees is not recommended.

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60+% debt-to-income ratio category

Reaching a 60+ percentage is concerning and signals over-indebtedness, Oberholzer says. The best you can do is find an authorised professional or entity to help you return to a place of experiencing financial freedom again. Definitely do not participate in any Black Friday, Cyber Monday, Tech Tuesday, or Black November ‘sale-of-the-year’ buys.

“Managing your debt is not only unavoidable, but also crucial during these last few months of 2022. By determining your debt-to-income ratio before taking on any additional debt during imminent, enticing events, you take an essential step towards informed decision-making and financial knowledge.”