I work as an IT technician in Dubai and live with my friend. He lost his personal trainer job recently and has been struggling to find employment. We are childhood friends, so I had no qualms about lending him money to meet his basic needs after he lost his job.
Although he paid the minimum monthly amount owing, he still has the card and continues to use it. I am worried that I will have to pay the consequences and my credit history will suffer as a result of his spending.
He is close to exhausting the limit on my credit card. How do I get him to pay back the total amount owing and get back my card? SI, Sharjah
Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com
There are certain things in life that you should never hand over to other people and that includes credit cards.
You have learnt a tough lesson here and it’s particularly sad because you are childhood friends. Most of the time, when you lend a friend a significant sum of money, you end up losing it and damaging the friendship — a double loss.
Your friend may not even have bad intent to abuse your generosity here. He may not understand the dangers of credit cards and think that paying the minimum balance each month is fine until he gets back on his feet and can pay you back. Many people behave like that, only paying off the minimum.
However, the dangers of credit cards are very real. If you do not pay off the full amount or as much as possible every month, your debts will rapidly grow well past the card limit. Many cards in the UAE have an effective annual interest rate of more than 40 per cent — you cannot just multiply the monthly rate by 12 as interest compounds on interest.
I would have been more comfortable if you had left Dh10,000 in your current account and given him your debit card. At least then, you would have had some control over his spending.
You have to act immediately. You must get the card back from him now and do not take no for an answer. If he refuses, then you can go online and block it temporarily or call the bank and cancel it.
At least get a photo of the front and back of the card to do this. Your friend is drowning and, if you carry on, he will drag you both down.
Once the card cannot be used, you should try to pay off as much of the amount owed as you possibly can. If he can help in any way, then get some money from him, although I suspect he has none.
You should be focused on paying off the card debt in full. It won’t be a pleasant time but you will be in a much better position when your arrears have cleared.
Your credit rating will not be affected by only paying off the minimum balance but it will be affected if you start to miss payments. Your score may also fall once you start to utilise more than a third of your limit and will worsen when you get close to or hit your limit.
As your friend lives with you, I imagine he doesn’t help with the rent either.
Now is not the time to ask him to leave but he does need to start thinking about moving back home if he can’t get a job. Reassure him you will do whatever it takes to help him find a job but you cannot help him financially any more.
If he is a good personal trainer, can he train people you know at home or at one of the more open gyms? Can he promote his services on Facebook groups and other social media?
Hopefully, he will pay you back but don’t be surprised if you never receive some or even all of it. You’ve been a good friend but now it’s time to protect yourself.
Debt panellist 2: R Sivaram, executive vice president and head of retail banking products at Emirates NBD
Feeling the need to help is human nature, but it is not wise to do so while endangering your own financial situation. Giving your credit card to someone else is never a good idea as it will add to your debts and have a direct impact on your credit rating.
Despite understanding the risks of giving credit cards to others, most of us find it hard to say no when approached by a friend in need.
However, you have to be cautious when giving your credit card to anyone. When you lent your credit card to your friend, I assume you extended your help without any legal document or a clear obligation to pay you back within a certain number of days or months.
Given that your friend had recently lost his job, you could have lent him some cash to meet his daily needs instead of giving him your credit card. This way, it would not have added to your financial obligations or made the borrower more responsible towards paying you back.
Given the situation you are in, firstly I would suggest talking to your friend and taking your credit card back.
If your friend is still co-operative, work out a plan based on the amount of money he is be able to pay back every month.
Paying only the minimum amount each month means that you are now being charged interest on the unpaid portion and this will quickly add up on top of what you currently owe. It will also have a negative impact on your credit score.
If your friend is in a position to pay a fixed amount every month, check if your bank offers instalment plans on your credit card and see if you can convert your outstanding at a reasonable rate of interest.
This will help to ensure you are repaying a reasonable amount monthly and will also help improve your credit score.
If your friend is not supportive, I suggest you get in touch with your bank and have your card blocked from any future use.
To ensure your credit record is not adversely affected, talk to the bank and work out a monthly payment plan. I wish you the best at arriving at a suitable solution to the issue.
Debt panellist 3: Carol Glynn, founder of Conscious Finance Coaching
Financially supporting a friend during times of need is very honourable. However, it is important to ensure there are clear boundaries around how much they can financially rely on you.
It’s important to have an open and honest conversation with your friend.
Set boundaries on how much you are willing to lend them. It seems your friend has abused your trust and overused your credit card. I would suggest taking back your credit card to prevent any further expenditure on it.
If you want to continue to support your friend, you can agree on a cash amount they can borrow. This will protect your credit and limit the amount you are exposed to.
Does your friend understand the consequences of paying just the minimum payment on your credit card? If not, explain they are also liable for any interest incurred on unpaid balances.
If your friend is unable to pay the full credit card balance but you have the means to do so, I suggest you pay the card in full to prevent interest charges and to protect your credit rating.
You should then reclaim from your friend the amount they spent plus any interest incurred.
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