Credit bureau TransUnion conducted research on credit behaviour around Black Friday and found out that, between November 19 and 26 last year, more South Africans took out loans and increased their spending limits. There was a 37% increase in new accounts and a 21% increase in total credit limits for new credit card, clothing and retail revolving accounts.
TransUnion data found that, six months later, just over half of the new retail revolving accounts opened during Black Friday were more than one month in arrears. This meant that people had become caught up in the Black Friday hype without thinking about how they were going to pay for their purchases.
The only way you really save on Black Friday is if you have put money aside to make a purchase and you pay with cash, not credit.
Using your credit card sensibly
If you are in a situation where there is a big-ticket item such as a television or kitchen appliance that you decide to purchase on your credit card and plan to pay off over a few months, then you should rather use the budget facility.
Chris Wood, executive at Nedbank card issuing and payments, explains that when you select the budget facility on your credit card it acts like a term loan rather than a revolving loan, so you know exactly how much it is costing you and when it will be paid off.
You can select to pay off the item over three, six or 12 months and the instalment is shown as a separate item on your credit card statement. Although the same interest rate will apply, if you meet those budget repayments your purchase will be fully paid off over the period you selected. This allows for better financial management.
However, make sure you can meet those monthly repayments because if you miss them you will be in default and additional interest and penalties can apply. Also be aware of the interest it will cost you. For example, if you bought an item for R10 000 and paid it off over three months at a 20% interest rate, your instalment with interest would come to R3 445 per month – or R10 335 in total. That means the item actually cost you an extra R335.
If you extended the period to 12 months, your monthly instalment would drop to R926 per month but at a total cost of R11 116 over the full period, which is R1 116 more than the purchase price. So you need to balance this with the “saving” you make through a discounted price.
Wood says using your credit card’s budget facility is preferable to taking those loans that are often advertised on online shopping sites. Such loans attract additional initiation and service fees, but with your credit card there is no loan initiation fee and you are already paying the monthly service fee as part of the facility.