Go into Black Friday 2020 well-prepared, be wary of making more debt

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‘Used responsibly, credit can help people afford items they might not otherwise be able to buy, but it is essential that consumers only spend what they can afford to repay,’ says Lee Naik.

If you have not started planning for Black Friday, you have to do it now before hitting the shops on Friday, whether online or in person. Few consumers can afford impulsive buying and spending on things you will never use.

Like many marketing ploys, Black Friday has arrived on our shores from the US, where it’s held on the last Friday of November to kick off the Christmas buying season. However, even in the country where it originated, consumers have to watch their spending because consumers all over the world are struggling due to the pandemic.

With economic growth already sluggish in South Africa before the pandemic and many consumers unable to pay their debts, this is not a good time to use your credit card. Lee Naik, chief executive officer (CEO) of TransUnion Africa, warned that it was important that consumers take careful stock of their finances before using credit for that “special” bargain on Black Friday and Cyber Monday.

Credit behaviour around Black Friday in 2019

TransUnion’s research into credit behaviour around Black Friday last year indicated that many people got caught up in the sales hype and struggled to pay off this credit in the months after that.

“Our research showed that people were more likely to take out loans and increase their spending during the Black Friday period. There was a 13% increase in new accounts opened over this period compared to the previous month, as well as a 4.5% increase in credit card spending and a 5.2% increase in the use of retail revolving accounts.

READ MORE: 6 shopping tips for Black Friday in 2020

“The majority of this growth came from higher-risk loans: there was a 35% increase in retail instalment accounts, normally used for furniture and electronics opened and a 23% increase in store accounts for clothing and smaller household items,” said Naik.

He said six months later, more than half of those new accounts were in arrears by one month or more, and he could not see that it being any different this year.

Influence of Covid-19

TransUnion’s latest Financial Hardship Study, which measures the impact of the Covid-19 pandemic on South African consumers, found that 77% of South African consumers said the pandemic was still having an impact on their finances. They said the bills they would probably be unable to pay would be for credit, including personal loans (36%), retail/clothing store accounts (35%) and credit cards (33%).

Stay away from credit

He said before you applied for credit this Black Friday, ensure that you have a full picture of your ability to repay any existing and new debts.

“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.”

Draw up a budget and stick to it

Take an honest look at your finances and decide what you can afford. How much can you afford to spend on a particular item? If you are buying it on credit, can you afford the repayments?

Do a credit health check

Check your own credit health by asking yourself: do you know what you currently owe? Get a credit report to see.

ALSO READ: Struggling businesses advised to exploit Black Friday phenomenon

Beware of new credit

Watch out for a lot of new credit applications at one time. They could be a big red flag to lenders that you are potentially in financial trouble.

“Every time you apply for credit, the credit provider will draw a ‘hard’ credit report on you. If you have too many ‘hard enquiries’ in a short period of time, it can negatively impact your credit score,” said Naik.

Do your homework

Make sure you know what you want to get out of Black Friday and Cyber Monday. Make a list with priorities according to what you really need. A new fridge, for example, is more important than a new gaming console.

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