I am a British project manager living in Sharjah and I write this letter with a heavy heart. I have a personal loan with an outstanding amount of approximately Dh65,000 and a car loan with the same bank of Dh57,500. I also have five credit cards with various banks with a total outstanding of Dh120,000.
There are a few reasons why I ended up in this mess. My previous employer did not pay my salary of Dh10,000 for two to three months. Then when I left the company, I was paid a lump sum of Dh40,000 with the intention of paying off some of the credit card debt. However, the bank froze the account in November 2015 until I joined my new company and presented the details of my new employer (which is standard procedure). Three months went by as the visa approvals were completed, and then I started my new job earning Dh13,000 per month. When I visited my bank and gave them the new employer's details, they demanded a salary transfer letter (STL), something my company does not issue until you have served five years. It meant that the Dh40,000 was used as partial payment towards the loan rather than the credit cards. We are now struggling to keep up our monthly commitments and we are always getting emails and calls from debt collectors. I have visited my bank and to ask for help towards a debt settlement loan, however I have hit a brick wall because they ask for this STL and my employer won't give me the document I need. I want to pay back every dirham, so how can I get around this issue? SL, Sharjah
Debt panellist 1: Keren Bobker, The National's On Your Side columnist and an independent financial adviser
SL has total outstanding debts of Dh242,500 but a salary of Dh13,000 per month. While the total debt amount is quite a large sum, the repayments ought to be affordable – but I presume the problem is that the interest rates on the credit cards are high. It is an all too common issue; people use their credit cards too much, build up large debts at high rates of interest and then struggle with the repayments, which can then lead to a slippery slope of spiralling debts that never reduce. Credit cards are a useful tool but it is very important to repay them in full, ideally each month, and keep balances low.
The Debt Burden Ratio (DBR) should be below the stated UAE maximum of 50 per cent, so there should be options to restructure the debts. The DBR is the percentage of income that is used to repay any debts each month under UAE law, as set by the UAE Central Bank, and should be strictly followed by all lenders when advancing all loans and approving credit cards.
I do not understand why an employer would not provide a salary transfer letter, as this is simply confirmation of employment and the monthly salary payable. It seems unreasonable of an employer to refuse to provide this. There is no legal requirement for any employer to provide a salary transfer letter and no way of insisting that they do so. In addition to being a requirement for any lending, such letters are also required to sponsor any family members or domestic staff.
While most banks will request a salary transfer letter when considering a loan, not unreasonably, it may be possible to obtain a loan without it if several months’ payslips are provided, together with a copy of the labour contract, although options will be limited.
I suggest SL approaches his current bank, as they know his track record and they can bypass this requirement if approved by a senior member of staff. They can always telephone the employer to confirm that SL’s position is ongoing. It will require the agreement of senior staff to agree to advance a loan without a salary letter, but it is possible.
If a new loan can be arranged to cover the outstanding credit cards, the interest rate will be lower and so the payments will be more affordable, thus allowing SL to repay his debts over time. The credit cards should be cancelled and not used again to avoid future problems.
Debt panellist 2: Alice Haine, personal finance editor at The National
If SL’s employer won’t give him the document he needs to resolve his debt issues, then perhaps it is worth considering finding a new job. It’s a simple document that any reasonable employer would provide, and if they refuse to give it to him then he must look elsewhere for employment. This may sound like a drastic move, but SL is in a drastic situation. He earns Dh13,000 and owes almost Dh245,000 – that’s almost 19 times his monthly salary. If that’s not a wake up call, I don’t know what is.
The next step is to resolve the debt. While half of his liabilities are in secured personal finance products through a personal loan and car loan, the other half (Dh120,000) is spread across five credit cards. This is a huge amount to have on a financial product that can charge you about 42 per cent a year in compounded interest. If you are only paying off the minimum balance each month, it will take a long time to make any inroads into the outstanding balance.
If finding a new job, and in turn securing a consolidation loan to round up all your credit card debts, is not a workable solution, then your next strategy must be to pay down the credit card debt. The best move would be to either pick the card with the highest interest rate or the card with the lowest outstanding balance. Then, while you stick to only paying the minimum balance on the other cards, throw all your spare cash at this card to pay it off once and for all. Once that debt has gone, go into the bank to cancel and close the card. Then target the next card and so on. Removing one debt at a time in this manner will help to ease the load. You will actually feel lighter as you have one fewer card to think about, and systematically removing them one by one will then leave you with fewer liabilities to focus on and ultimately less to pay off.
The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank; Ambareen Musa, the founder and chief executive of the comparison website Souqalmal.com; Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life; and Keren Bobker, The National’s On Your Side columnist and an independent financial adviser with Holborn Assets in Dubai. Together they answer queries in a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to pf@thenational.ae.
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