Business

How to avoid the Black Friday debt trap

The biggest one-day shopping event in the world is fast approaching. And in South Africa, consumer spending on Black Friday continues to increase year on year, with sales volumes having tipped the scale at over R2.5 billion in 2021. Despite 2022 being one of SA consumers’ toughest years yet, experts predict that South Africans will turn to credit to support increased spending over this period. This increase in spending could be seen as a way to make up for what they haven’t been able to purchase during the year. But consumers need to think “beyond Black Friday” and manage their credit smartly to avoid falling into a debt trap ahead of the busy festive season.

I advise South Africans to not think of Black Friday as the day to make up for lost time, when it comes to spending. Instead, Black Friday should be thought of as a chance to take stock and make a financial plan that will allow you to see the end of the year through without incurring unnecessary debt.

According to the South African Reserve Bank, the most recent household debt-to-income ratio in South Africa stands at 75.1%. The added pressures that the pandemic years placed on consumer pockets, compounded by the reverberant effects of an unstable geopolitical climate mean that for the majority of South Africans, over-spending on Black Friday is not a wise option.

We urge South Africans to practice purchasing and responsible borrowing as a component of personal financial wellness. On the whole, South Africans need to become more aware of how the financial decisions they make today, will impact them in the months and years to come.

Don’t budge on your budget

Impulse buys are the number one culprit behind overspending on Black Friday. But planning ahead can help you avoid falling prey to the frenzy.

Before considering any of the deals and promotions that brands push during this time of year, make a list of essential items you need to buy as well as non-essential wish list items. After establishing what you’re willing and able to spend on each of these items, set a spending limit and do not compromise on it.

Armed with your list and your limit, you can safely browse available offers and choose to take advantage of them if they are relevant to what you originally planned to buy. Anything that didn’t make the preliminary list or fall within the limit, simply shouldn’t make the cut.

Think outside the ‘Black Friday box’

In previous years, Black Friday was dominated by more ‘traditional’ retailers on items such as clothing, electronics and home appliances. But over the years, all kinds of retailers and service providers have jumped on the bandwagon by finding innovative ways to get in on the action.

Therefore, when planning ahead, set your sights on your planned expenditure for the rest of the year. Consider things like whether you’ll need to change your tyres in the upcoming months, whether you need a windscreen repair or if you’re planning a home renovation.

If you know you’ll be footing the bill for these kinds of costs in the near future, have a look at whether you can take advantage of savings on those products or services on Black Friday.

Cash in on loyalty programmes

Ahead of Black Friday, many retailers use loyalty or cashback programmes to incentivise shoppers and build their databases ahead of the festive rush. Some of these strategies include offering newsletter subscribers early access to deals or offering first-time newsletter subscribers exclusive discounts on their Black Friday shop.

In the days and weeks leading up to the big day, you’ll most likely come across these kinds of targeted ad campaigns and promotions, but instead of allowing these marketing messages to “pull” you in many different directions, you should go back to your list and your budget and use it to decide which campaigns to buy into.

Allow yourself to be guided by what’s already on your list and visit the websites and social media pages of those specific retailers to identify whether there are ways that you can use cashback or discount deals to hack your way to some bonus savings.

Do the math

Resisting the urge for immediate gratification is essential to steering clear of over-spending and there is a highly practical way of doing this.

Before making a credit purchase, calculate these two vital factors: how long it will take for you to pay the item off and how much interest will have accumulated by the time the item is paid off. This will allow you to factor repayments into your monthly budget going forward and prepare for any financial or lifestyle adjustments you’ll need to make to accommodate the purchase.

Doing the math will give you a clearer picture of the commitment you’re making when you buy something on credit. That sentiment is really at the crux of responsible personal debt management – taking out credit is a commitment that comes with both immediate benefits, and longer-term responsibilities.

Tonia Pavlou is deputy CFO of RCS.


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