The Debt Panel: 'Should I top up my loan to pay off credit cards?'

The Abu Dhabi resident is seeking advice on how to lower their high interest monthly instalments

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I have two credit cards from different banks with outstanding balances of Dh15,000 and Dh10,000, respectively. I also have a personal loan from a different bank with an outstanding balance of Dh55,000.

I pay a monthly loan instalment of Dh5,000 and have one year left on the loan.

So, my total liabilities amount to Dh80,000. I was planning to top up my personal loan to pay off and close my credit cards but am unsure if this is the right approach.

I have Dh10,000 saved in an emergency fund. I want to add more to this once my finances are on track.

However, I am finding that paying the high credit card interest and loan instalment is proving to be quite tough.

Would you recommend topping up my personal loan to pay off my credit card balances?

Or is there a better way to lower my monthly instalments and not pay high interest? MA, Abu Dhabi

Debt panellist 1: R Sivaram, executive vice president and head of retail banking products at Emirates NBD

Financial products such as credit cards and loans have enabled many people to realise their dreams and help to grow their potential.

However, since these products come with considerable costs, it is essential for people to be responsible and plan their expenditure as per their income.

As a rule, you should always serve your higher interest-bearing loans first and for most banks, credit card balances carry a higher interest rate than personal loans.

One option would be to reach out to your credit card issuing bank and explain your current situation.

Given your willingness to close the debt, most banks will be able to assist you with card restructuring, allowing lower monthly payments at a discounted interest rate.

Alternatively, you could explore a top up on your personal loan, which will incur additional processing fees, insurance charges and an increased equated monthly instalment (EMI).

This will allow you to consolidate your debt and make it easier to manage a single monthly payment.

Lastly, if you have funds available in the UAE or back home, do consider an early payoff of your personal loan to get a break on interest payouts.

During this time, I recommend that you budget carefully and keep up the repayments.

I also suggest you eventually create an emergency fund, which covers six to 12 months of your monthly salary/income for a “rainy day”.

Forming healthy financial habits takes time and effort. It is commendable that you are reaching out for assistance and taking charge.

Debt panellist 2: Jaya Ratnani, managing partner at Freed Financial Services

Based on your current state of affairs, the best possible solution would be to consolidate your outstanding liabilities into one monthly payment.

This will help to avoid the high annual interest rates applicable to your credit cards and obtain a monthly instalment amount that allows you to pay off your outstanding amount in a structured manner.

For example, the interest rate for a credit card is 2.5 per cent to 3.5 per cent per month, equating to 30 per cent to 45 per cent annually, whereas the interest rate for a personal loan ranges from 6 per cent to 12 per cent annually on a reducing balance.

To do this, you need to apply for a top-up of your personal loan with your salary transfer bank and inform them that the purpose of the loan is to pay off your credit cards.

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It is important to note that your credit cards will be blocked and cancelled when you apply for liability letters from the banks.

This will also help you to lead a disciplined financial life as you will be bound to use a debit card for any purchases.

If you have a good Al Etihad Credit Bureau credit score and if you are eligible for a personal loan, this will equate to a large amount of monthly savings that will help you to clear your debt at an accelerated pace.

Debt panellist 3: Alison Soltani, founder of Leap Savvy Savers

First of all, I commend you on starting to build your emergency fund and making a plan to come out of debt.

It was an excellent decision to put some money aside for your emergency fund, but it may be wise to pause those contributions until you have paid down at least half of your outstanding debt.

The decision on whether to top up your loan and use this money to pay off the credit cards will depend largely on the interest rates of the various debts.

If the interest rate on the loan is significantly lower than that of the credit cards, it might be worth checking whether you can increase your loan.

It may not be possible, depending on your credit score (you can easily check this on AECB's website) and your debt-to-income ratio.

This means that you pay the minimum on all the loans and then clear the debts in order, from the highest to lowest interest rate
Alison Soltani, founder of Leap Savvy Savers

To gain approval for a loan or loan top-up, your overall debt compared with your income will be assessed.

In the UAE, if your debt burden exceeds 50 per cent of your income, most banks and financial institutions will not approve lending to you.

Find out from your loan provider whether it is possible to increase your loan before making the final decision.

It might be quicker to use the debt avalanche method to tackle your credit card debt.

This means that you pay the minimum on all the loans and then clear the debts in order, from the highest to lowest interest rate.

There may be a possibility of reducing your loan EMI by extending the maturation, then using all your disposable income to pay off the credit cards first.

If you pair the debt avalanche method with a reduction of your monthly expenses, you will clear your credit card debt faster.

List out all of your monthly expenses and categorise them into needs and wants.

You may think you need to spend money on luxury items, but if the debt is causing you stress, reducing your discretionary spending and actively paying more towards the debt can help to lower your stress levels.

This will not only help you in the short term to pay off your debt, but will also help you to manage your personal finances in the long term.

It may also help to review the reasons you got into debt.

You may find that there were unavoidable circumstances or you experienced a financial crisis, in which case a robust emergency fund will help to prevent this situation in the future.

On the other hand, if you are not happy with your spending habits, working on budgeting skills, looking at spending triggers and making financial goals can help to keep your spending under control moving forward.

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

Updated: February 22, 2023, 5:00 AM