It’s been an incredibly tough year financially for many South Africans. So, before you start using credit for that ‘special’ bargain on Black Friday and Cyber Monday, take careful stock of your finances.
Last year, TransUnion research showed that many people got caught up in the sales hype and struggled to meet their credit obligations in the months that followed. This year, the COVID-19 pandemic is still affecting the finances of many (77%) South African consumers – and the bills they are going to battle to pay are credit products like personal loans (36%), retail/clothing store accounts (35%) and credit cards (33%).
Used responsibly, credit can help you afford items you might not otherwise be able to buy. However, it is essential that you only spend what you can afford to repay. Before you apply for credit this Black Friday, it’s important that you have a full picture of your own ability to repay any existing and new debts.
Here’s how to avoid the Black Friday blues and use credit responsibly:
Don’t get carried away. Take an honest look at your existing finances and decide what you can afford. You need to look at how much you can afford to spend on a particular item and if you are purchasing it with the help of a credit product, what repayments you can afford to make after you’ve bought the item.
Before you start dreaming of shopping carts full of bargains, take the time to know your own financial health. Do you know what you currently owe your lenders? Have you pulled your credit report recently to see whether you have debts you are unaware of? Do you have any defaults or judgements against you that need sorting out?
The more you understand your current financial health, the more realistically you can set limits as to what you can afford. And if your credit score is low, rather stay away from credit now, and instead start rebuilding your credit health.
There’s no problem with opening a new credit card, or taking out a revolving credit facility. But too many loan applications in a short space of time could be a big red flag to lenders that says you’re potentially in financial trouble. At the very least, you’ll be attracting attention the next time you ask a lender for credit.
Every time you apply for credit, the lender will draw a credit report on you – something known in the trade as a ‘hard’ enquiry. Many people don’t realise that too many ‘hard enquiries’ in a short period of time to check your credit can negatively impact your credit score. Even things like applying for a new cellphone account and requesting a credit limit increase in a short period of time can affect you, so make sure they are absolutely necessary.
Many credit agreements offer the option of credit insurance, which ensures your debt is paid if you are unable to continue payments due to job loss or illness. It’s also important to meet the minimum monthly repayments on any credit agreements you have – and if possible, it’s advisable to pay the debt off faster. Missed, or late, payments are the biggest factor that affects your credit score negatively.
Be very clear on what you want to get out of Black Friday and Cyber Monday. Prioritise according to what you really need: a washing machine may be more important than a new gaming console, for example. Then focus only on those important items.
With bargains galore, it can be easy to get drawn into the hype and make purchases you later regret. It’s also important to know what you’re prepared to pay and how you’re going to finance your purchases. Make a budget and stick to it. Check what the items normally cost and ensure you are really getting a good deal.
And remember, Black Friday and Cyber Monday are just the start of the festive retail season. There will be plenty of sales coming up. It’s better to walk away with nothing than end up with a mountain of debt you can’t afford to repay.