Best way to address Dh75,000 built up in credit card debt

A consolidation loan or a credit card with a 0 per cent balance transfer option are the best solutions for a resident with Dh75,000 in credit card debt.

I have a credit card with an outstanding balance of Dh75,000. Can you suggest any options to get rid of this liability? I have approached so many banks for a personal loan to settle this but the banks say with this much on my credit card they cannot offer me a loan. RP, Abu Dhabi

The expert advice

Abu Dhabi Islamic Bank

The sizeable amount of debt you have accumulated on your credit card suggests that you have been building this debt probably for some time.

It also indicates that you have either exhausted all your other means of financing or that you need some help to understand the various ways that debt can be managed – some more cost- effectively than others. While cards are a very convenient method of payment they need to be managed carefully, as they tend to have a higher cost in the longer term and are best used to bridge short-term funding gaps only.

Our advice would be to stop using the card immediately – which may mean that you give it to someone you trust for safekeeping so that you are not tempted to use it when a need or an opportunity arises – and look for a consolidation scheme. The Al Khair consolidation scheme at ADIB will allow you to put a range of different finance obligations into one financial arrangement and manage your debts collectively at a reduced rate. The benefit of this kind of plan is that it allows you to centralise all your debt in one place and it brings down the overall cost of servicing it.

This will help reduce part of the cost to you, but of course the actual debt still needs to be dealt with. You should therefore also speak to a personal finance adviser about ways to reduce the principal debt, not just the maintenance payments on it.

Depending on your salary, your essential outgoings and your credit history it is possible for you to negotiate a repayment package that will allow you to reduce your debt over time and to gradually readjust your spending habits around the money you earn. In the longer term you should look at creating a budget and follow a discipline in the way you handle larger payments in the most cost-efficient way.

The reader’s advice:

Damodhar Mata, author of financialplannigindubai.com, Dubai

Getting rid of credit card debt is difficult, but certainly possible with discipline, self-control and an effective strategy. Many banks in the UAE are offering balance transfer facilities on attractive terms. If you were eligible for the credit card from your current bank, I am sure you will also be eligible for another card(s). Let’s say Bank H, a leading multinational bank, is offering 0 per cent interest on balances transferred from other cards for a period of six months.

Step 1: Apply for Bank H’s card and when you get the new card, transfer the balance on your current card to H Bank, to avail the 0 per cent interest offer.

Step 2: Close the current card. (Do not delay in closing the card, otherwise you will end up with more credit card dues). Assuming you are now only making the minimum payment on your current card(s), your monthly payment would be Dh3,750 ie 5 per cent of Dh75,000.

Step 3: Budget your expenses and allocate the maximum possible money towards credit card payment to Bank H. If you pay only the minimum payment due on the card, it will take you years to pay off, even for a very small outstanding balance.

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The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek appropriate independent legal advice

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