The Dubai resident Michael Routledge set up savememoney.ae in June 2016 to help UAE residents struggling with high levels of personal debt.
The 36-year-old is now closing the advisory platform due to increased work commitments and a new young family; the Briton has a successful career as a mechanical engineer in the oil and gas industry, which requires increasing amounts of international travel and demands on his time.
Over the past 16 months, more than1,000 UAE residents in chronic debt have contacted him for support and a further 150 have downloaded his Debt Support Package, which offers templates to help debtors create a statement of accounts and write letters to the banks to help them negotiate restructuring solutions. Mr Routledge has also been a regular contributor to The Debt Panel, a weekly column in The National that helps readers address their credit woes.
Mr Routledge’s motivation for setting up the site was his own experiences of being in chronic debt. In his early 20s in the UK, he amassed £50,000 of debt (Dh241,000). At the time his annual salary was less than a third of that amount – a situation he eased himself out of by negotiating with the banks and paying each liability off until he was clear in 2014.
After moving to the UAE, he wanted to use what he had learned in the UK to help those struggling. However, he found the banking systems and the types of issues debtors face very different. Here, he reveals his insights into the UAE’s personal debt challenges.
Why are you closing savememoney.ae?
The main reasons are changes in my professional career and the demands of a young family. I am not able to put in as much time anymore and because this is not something that supports me financially, I have to prioritise my own career. I will be winding down the site over the next month until its official closure on December 2.
What is the No 1 thing you have learned from running the site?
The majority of the people that approach me want a quick fix. Unfortunately, with a debt burden ratio (DBR) of over 50 per cent the lower earners are never going to have a lot of disposable income to service their debt. My motivation was always to teach people to solve the debts themselves by negotiating directly with the banks. Many say the evil banks tricked them into borrowing money but in many cases you could argue the opposite. They’ve borrowed money to give to a friend, set up a business or pay for someone’s wedding and I’m sure those are not the reasons they gave to the bank when taking on credit. I’ve had to get myself out of debt and until people admit they have a problem, it’s very difficult to move forward.
But the banks are not entirely blameless?
None of the financial institutions are without blame. They often lend to people they shouldn’t and I’m sure they know how the situation will end up. It’s how businesses make money.
So what is the underlying cause of this?
Consumers have no credit history when they arrive in the UAE and are lent money based on the value of their monthly salary. They often have little financial education and as soon as they arrive, they are offered credit continuously until they hit the maximum level possible for their income.
Why did those who approached you get into debt?
The cases were very similar, with 95 per cent low earners, earning less than Dh10,000 a month. People needed money because their mother was ill, to support their family, to set up businesses or because they had lost their jobs. With the low-income Asian communities, they come here having never been given a dime of credit in their life and are immediately able to access vast amounts of credit. It’s a bit like professional athletes, who suddenly get paid far more than they’ve earned before and they don’t know how to handle it.
Were there any consistent themes?
One was people exhausting credit streams from the banks and then borrowing from friends. The friends were giving them the hardest time, charging 10 per cent interest and demanding the money back immediately. There is a pretty slim chance that if your friend has lent you money with no documentation, that you will end up to in prison. So I advised concentrating on their bank debts that would get them in trouble if not paid back. Obviously, service the debt of your friend, but tell them you have fallen on hard times and you want to restructure the payments.
What about higher earners?
Some pretty high earners got in touch, earning Dh30,000, Dh40,000 and Dh50,000 plus a month. They were generally westerners. The level of salary was higher but that just meant the level of debt was also far higher. For them it wasn't that they were sending money home but that they were spending a tonne of money here. You get contacted by people on Facebook saying they can’t manage anymore and their profile photo is of them on a yacht. Westerners are bad at that. Dubai is seen as a place where you come and live in the lap of luxury.
Were the debt levels comparable to what The National sees on The Debt Panel?
Yes. For the low-income segment, you typically have people earning Dh5,000 that owe Dh250,000. But at the higher end, we had a guy earning Dh70,000 who had taken out a personal loan of over Dh1 million to put down as a deposit on a house. He was trying to keep up with the loan plus the mortgage and was using credit cards. It got to the point where he was paid Dh70,000 a month but that all went on loan, credit cards and mortgage payments. The most obvious thing was to sell the house but he was not willing to do it.
What underpins all of this?
In more developed parts of the world, financial institutions are more selective on lending money. You slowly build up debt, proving step-by-step you can handle it through a good credit history. Here, because such a high proportion of the population are not from here, it’s difficult to vet the people that come in for cross-border debt. Also, when you move here you need a decent amount of credit relatively quickly. To rent an apartment, the landlord wants one cheque so you probably need credit. That needs looking at – why people have a requirement for credit the moment they arrive.
What improvements have you noticed?
The introduction of the Al Etihad Credit Bureau (AECB) in 2014 was great as in the future nobody should get themselves into a situation where their DBR is more than 50 per cent of their monthly income. But you still have this huge vacuum of people that owed 50 per cent plus when the bureau introduced. The rule regarding the DBR has actually been there since 2011, but prior to the AECB, banks had no way of tracking this other than through the statements.
What is the solution?
The two main changes I’d like to see are legislation from the Central Bank of the UAE that ensures lenders are obliged to reschedule debt once the consumer can prove their DBR is over 50 per cent. This legislation should also fix the interest rate of rescheduled debt. I’d also like to see the attitude of the consumer change. Most who have approached me have just wanted the work done for them. From my experience of being in debt, there is no better financial lesson than digging yourself out of debt. I would not change my past at all, as I’m probably financially better off because of that experience. Some people pay debt management companies Dh10,000 or Dh20,000 to fix their problems. That’s money they could have used to pay their debt off eight months earlier by negotiating directly with the lenders.
How can people negotiate?
Approach the bank with a statement of accounts, your credit report, your salary slips and any other evidence you may need. This ensures you are totally transparent about your income, outgoings and what you have left to pay. It takes hard work and some banks aren’t willing to negotiate and some offer terrible restructuring terms but at least you are doing everything you can. Banks must also realise you can’t get blood out of a stone. If someone gets paid X and their rent, utilities and enough to eat every month is Y, then the difference between those two numbers is what they can afford to service the debt. By saying 'this is what I can pay', it is better than a police case and jail where the bank gets nothing.
What can hinder the negotiation process?
Many cultures here send money home to their families, but unfortunately it’s not the bank's problem that you want to send Dh3,000 to your parents every month. I’ve had a hard time convincing people that the bank will see that as money they should be getting. I advise the longer game, sending Dh500 a month for 20 years rather than Dh3,000 for a few months and then landing in trouble.
What about financial education?
I would like to see big businesses tie up with financial trainers to offer staff financial education seminars. People are only here because of their employer and if I have staff on my visa I want them to keep their noses clean and debt is another way to get into trouble. Companies would have less HR issues and staff turnover if their employees weren’t burning through money and accumulating debt. Employers can also help by paying rent upfront and offering interest free short-term loans to prevent debt building up at the outset.