Consumer alert: Don’t allow Black Friday purchases to push your debt over the edge
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By Carla Oberholzer
South Africans have been facing unending challenges. And, 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, should exercise caution when participating in any upcoming online or in-store “shopping bonanzas” simply because you “can” or want to.
Stand firm and don’t 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.
If your debts are already excessive in comparison to your monthly income, you will only be digging yourself deeper into a bottomless debt hole when taking part in Black Friday or related events. It is shocking what we have seen in the industry – most consumers spend over 60% of their income to service their monthly debt obligations.
I would, therefore, advise you to calculate your debt-to-income ratio before considering spending money you have not budgeted for or do not have. When it comes to keeping those money situations under control, proper debt management is crucial.
What exactly is a debt-to-income ratio?
Your debt-to-income ratio is an essential calculation in managing your debt. It compares your monthly income (gross – before deductions) with how much you owe (the total amount of your monthly debt obligations, such as repayments on a home loan, vehicle finance, credit cards, store accounts, and personal loans).
How do you calculate your debt-to-income ratio?
The calculation in a nutshell:
● Add up all your monthly debts.
● Divide your total debt amount by your income amount before any deductions (gross salary amount) and multiply by 100 to get a percentage.
● This percentage is your debt-to-income ratio.
A low debt-to-income ratio demonstrates a favourable balance between your debt and income. In contrast, a high percentage highlights a riskier situation.
Which of the following category does your debt-to-income ratio fall into?
0-20%: Good.Your debt compared with your income is considered to be good and easily manageable. Plan of action: You can continue to maintain your financial situation.
20-40%: Moderate. This reflects a moderate financial position. Plan of action: Consider making minor adjustments to lower your overall debt amount.
41-60%: Risky. This indicates you are in risky territory. Plan of action: Consider making significant adjustments to lower your overall debt amount. Taking part in any upcoming “sale” events or unplanned-for shopping sprees is not recommended.
60+%: Over-indebted. Reaching a percentage of more than 60% is concerning and signals over-indebtedness. Plan of action: Your best course of action is to find an authorised professional or company to help fix your debt safely. Taking part in any Black Friday, Cyber Monday, Tech Tuesday, or Black November “sale-of-the-year” buys is a definite no-no.
Managing your debt is not only unavoidable but also critical. By determining your debt-to-income balance or ratio before taking on any additional credit during imminent, enticing events, you take an important step toward informed decision-making and financial mastery.