Avoid falling into debt trap
DON’T SHOP TILL YOU DROP AND OVERSPEND ON THINGS YOU DON’T NEED
People who like shopping wait for it with bated breath: Black Friday, a day when they think they can shop until they drop. 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 instore ‘shopping bonanzas’ simply because you ‘can’ or ‘want’,” says Carla Oberholzer, spokesperson and debt adviser at DebtSafe.
“Stand firm and do not get tricked by various marketing gimmicks luring you in with a message such as: ‘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…’
“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.
“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 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.
“When it comes to keeping those money situations ‘under control,’ proper debt management is now crucial more than ever.”
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 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.”
0-20% debt-to-income ratio: Your debt, compared to your income amount, is considered good. Should you feel like participating in the upcoming shopping shenanigans, ensure that what you buy is a real special, that your budget will allow it and that the item is not considered a want.
21-40% debt-to-income ratio: 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: Consider making significant adjustments to lower your overall monthly debt amount.
60+% debt-to-income ratio: This signals over-indebtedness. Find a professional to help you manage.