I took out a Dh50,000 personal loan last year to help my family back home during the pandemic. They had no income at the time and I sent the entire amount to help them pay bills and the mortgage. They have since recovered financially and are OK.
I have been paying the loan off with monthly instalments of about Dh1,200. But I now find myself in a situation where my salary has been reduced and I am having trouble keeping up with the repayments.
I am worried the bank will call in the loan and I don’t have any savings to fall back on if this happens. I don’t want to ask my family for help because I told them I would take care of them when I took out the loan and not to worry about it.
I have no money in my account and have missed this month’s payment. Does this mean the bank will request I pay the remaining amount left on the loan in full? Or will I receive a warning first? Do you also suggest trying to talk to the bank about my financial circumstances before it is too late to do anything about it? GR, Dubai
Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
The first – and most important – thing is to speak to your bank immediately. It is unlikely that a bank would request full payment without issuing reminders or warnings, so the sooner you explain your circumstances to them, the sooner you can begin to find a solution that helps you to pay your debt in a sustainable manner that is agreeable to both parties.
Once you have opened dialogue, you can explore what options might be available to you. Depending on your situation – if you have other debt repayments, such as car financing or credit cards, for example – there may be an opportunity to reschedule your debt to bring down your monthly payments over a longer period of time.
Remember, your bank will not want to simply write off the debt as a loss; they want to see you pay back the money that they have lent to you, so work with them to find a way to pay it back.
If your situation worsens, don’t panic. Some banks are prepared to agree to a settlement figure as a way to get as much money back as possible without legal proceedings or having to write off the debt. If that happens, make sure to obtain written confirmation of the settlement that you do reach.
If the very worst happens, UAE law now enables you to declare yourself insolvent, which, if approved by the courts, protects you from legal recriminations.
It seems clear you are a person of good character and judgment who is trying to do the right thing, so start by talking to your bank to work out a way forward that will help you get back on track with your finances.
Debt panellist 2: Carol Glynn, founder of Conscious Finance Coaching
What a generous thing you have done for your family. As you were there for them when they needed help, they will want to be there for you when you need help.
I’m sure your family would not want you to face this financial issue alone. As they are financially recovered, I would recommend telling them what has happened and ask for their help.
I would also suggest setting up a meeting with your bank to explain your situation. Discuss the option of a payment holiday or a restructuring of your loan.
They will not request repayment of the loan in full after just one missed payment. But as this is a continuing concern, it is important to inform the bank of your situation and your intention to repay the loan to avoid it escalating further. Most banks will be willing to help you to find a resolution if you communicate with them.
Do you have any skills you can use to earn some extra income part-time? If your current employment contract allows it, you could seek out part-time work to bridge the gap in your income. Sign up for sites such as Fivrr or Flexjobs and use your skills to generate extra income.
It is also important to review your expenses to find ways to reduce your costs.
Examples are to move to cheaper accommodation to save on rent or flat share if you are not already doing so, cancel subscriptions you don’t need, reduce your grocery bill by shopping at budget-friendly supermarkets, stop eating out and use public transport. Set yourself a strict budget that allows you to make your loan repayments and stick to it.
Debt panellist 3: Felicity Glover, personal finance editor at The National
It is admirable that you have helped your family so generously, but sometimes even the best of plans can go awry.
This is why it is so important to have a financial safety net – ideally the equivalent of three to six months of your salary – in place to fall back on in times of economic stress.
Your first step is to contact the bank and arrange a face-to-face meeting with a senior manager to discuss your problem. It is crucial that you don't let this escalate any further and risk non-payment for a second and third month. Banks typically take action after three missed payments.
Be honest with them and explain why your salary has been reduced, which has left you struggling to keep up with loan repayments.
If your salary was reduced because of Covid-19, you can request a three-month payment holiday under the UAE Central Bank's Targeted Economic Support Scheme (Tess), which has been extended to June next year to help businesses and people recover financially from the pandemic.
This should give you enough breathing space to get back on your feet financially. Hopefully, by then, your full salary would also have been reinstated.
Your other option is to request a loan restructure to reduce your monthly payments by extending the term of the loan.
It is also important to follow up your meeting with the bank in writing by emailing the representative you met to outline what you have agreed.
As my fellow panellists also suggest, there are numerous ways to reduce your daily living expenses and work on a side hustle to earn extra money. Doing this will also help you to set up that all-important financial safety net to protect you from unexpected expenses, urgent family needs and a reduction in your salary, for example.
The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to firstname.lastname@example.org