South Africans are facing continuous challenges, frustrations and inconveniences –load-shedding and water restriction implementations, fuel and grocery price escalations, and repo rate hikes (to name a few). 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’. 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 compared to your monthly income, you will only be digging deeper into a debt hole when participating in Black Friday or relating upcoming events. Therefore, I’d recommend you NOT to shop ‘til you drop but to lessen your debt and return to financial freedom instead. From our 2022 research results, it is evident that retail credit is the debt consumers are primarily behind or in arrears with. I would, therefore, advise you and your fellow South Africans 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 now (more than ever) crucial,”highlights DebtSafe‘s spokesperson and debt advisor, Carla Oberholzer.
What exactly is a debt-to-income ratio?
Your debt-to-income ratio, also known as DTI, is essential in managing your debt. It compares your monthly income amount (gross – before deductions) with how much you owe (the total amount of your monthly debt obligations, such as rent, a home loan, credit cards, car payments, a store account, or other debt).
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),
● & (x) multiply it by 100.
● (=) The final percentage (%) determines your debt-to-income ratio.
Oberholzer advises you to continually do the calculation to make informed choices before spending your hard-earned money or when wanting to use credit, aka the bank’s money.
What the % categories mean & your plan of action going forward:
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. Which of the following category does your debt-to-income ratio portray?
0-20% Debt-to-Income Ratio Category: Your debt, compared to your income amount, is considered good. Therefore, you can continue to maintain your financial situation. And should you feel like partaking in the upcoming shopping shenanigans, remember to keep the following in mind:
- Please do your research well and ensure that what you buy is a real special, that your budget will allow it AND that the item is not considered a want.
- Since you will do your research (regarding prices and items) beforehand, there is no need to visit various stores, such as malls or outlets (including those online visits via shopping websites), to trick you into buying more than you can afford. Instead, outsmart retailers and stick to your budget to keep your debt under control. Then, only buy what you need, get out, and stay out of the shops (or avoid online shopping sites).
0-40% Debt-to-Income Ratio Category:
Your debt amount compared to your income reflects a moderate financial position. Therefore, consider making minor budget/lifestyle adjustments to lower your debt.
41-60% Debt-to-Income Ratio Category:
This percentage bracket shows that you are moving into risky territory. Consider making significant adjustments to lower your overall monthly debt amount. **And, partaking in any upcoming ‘sale’ events or unplanned-for shopping sprees is NOT recommended.
60+% Debt-to-Income Ratio Category:
Reaching a 60+ percentage is concerning and signals over-indebtedness. Your best course of action is to find an authorised professional or entity to help you return to a place of experiencing financial freedom again. **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 unavoidable and crucial these last few months of 2022. By determining your debt-to-income balance or ratio before taking on any additional debt during imminent, enticing events, you take an essential step towards informed decision-making and financial mastery.