<em>I have outstanding balances on three credit cards and have started to miss payments. So, can I secure a personal loan if I have already defaulted? My debts are:</em> <em>Credit card 1: Dh56,000 (monthly payment of Dh3,500)</em> <em>Credit card 2: Dh19,000 (monthly payment of Dh2,300)</em> <em>Credit card 3: Dh12,000 (monthly payment of Dh900)</em> Total owed: Dh87,000 <em>I borrowed the money for my sister’s wedding but started missing payments because my finances are not in a good state and I have family problems as well. I have approached banks for a buyout loan or a loan that buys out the credit card debt so that I only make one payment a month, but I am facing rejection. I had a personal loan in the past, which I completed the payments on in November last year. I don’t have any other loans. My missed payments have now affected my credit score at Al Etihad Credit Bureau; it is only 350.</em> <em>I moved to Dubai from India in 2008, where I work as an electrical designer earning Dh9,000 a month. I have worked at the same company since I arrived. My monthly expenses are Dh1,500 for room rent, Dh3,500 for remittances and Dh500 for general expenses. The debt payments come to Dh6,700 per month. How can I secure a new loan?</em> <strong>MR, Dubai</strong> The advice to anyone looking to borrow money for a mid-to-long period of time should be to take out a personal loan rather than using cards. Loans typically have a far lower cost of borrowing than cards and are designed to be held for a longer tenure, unlike cards which should ideally be paid off in full each month. You have done the right thing now in approaching your bank for a buyout loan, even at this relatively late stage. Given your salary of Dh9,000 a month, and total amount owed of Dh87,000, Central Bank regulations permit your bank to provide you with a consolidation loan. Ultimately, it’s up to the bank whether they approve this, as they obviously have to be confident you will make the loan repayments on time and in full, something that you haven’t demonstrated with your cards to date. You should now do two things; first, start to make regular repayments, and more than the monthly minimum for your cards, to help rebuild your credit profile. The Dh3,500 you send home each month can be redeployed to help with this. Second, create a detailed financial plan to take to your bank which shows that you’ve considered your financial situation and understand the steps and commitment required to become debt free. This will demonstrate that you’re serious about finding a sustainable path out of debt. A debt-consolidation or buyout loan may not be a feasible solution, especially given your low credit score. Banks are becoming increasingly wary of debt defaulters and skipping on your credit card payments would have already put you in the high-risk category. Since you've already missed the minimum credit card payments, the interest and fees would have started accumulating. Before you know it, you'll hear from debt collection agents. Now for possible solutions: you could get in touch with your individual credit card providers to request a restructured payment plan that allows you to pay off your outstanding credit card balance within a fixed time period. This could involve converting the outstanding debt into a fixed-interest loan and a waiver of late payment fees. In the meanwhile, don't miss making your minimum monthly credit card payments. Try following a systematic repayment strategy to help you get rid of your debts faster. You could start by paying off the debt with the highest interest rate first (debt stacking). Alternatively, you could pay off the smallest debt first, leaving you with fewer debt obligations (debt snowball). While the first method helps minimise your interest payments, the second may be more psychologically motivating. Review your expenses and see where you can cut back, especially in terms of remittances. You can rope in another earning family member or close relative to help meet the household expenses back home. This temporary arrangement will give you time to focus on repaying your credit card debt in the UAE. Once you're back on your feet financially, you can resume your regular remittances. Since you are currently draining your income in interest payments, it may be a good idea to liquidate some of your savings and investments to gather the funds to get rid of your debts. Do you own any assets such as property, gold or investments back home? Selling these will give you some extra cash to settle your debts here. You can also speak to your employer about your debt situation. A few months' salary in advance or an interest-free loan from your employer can allow you to pay off a chunk of your credit card debt. It might also be good idea to explore part-time or freelance work opportunities to supplement your income. Securing a personal loan could be challenging as it is unlikely another bank will offer you a new loan with a low score or defaults on your profile. Your best option is to ask each credit card lender to offer you an affordable repayment plan solution. This way, even though you will still have three repayment amounts, your total monthly repayment should be less. At the same time revisit your remittances of Dh3,500 and reduce this to the minimal possible, at least for the time being. If you have assets, consider selling them to reduce your debt. Ask for support from friends and family. Start by focusing on repaying the credit card with the smallest balance, so credit card 3 then move onto credit card 2 and finally 1. Also, take time to reflect and ask yourself what decisions you would make differently to prevent this from happening again. It is so easy to say 'yes' to committing to costs that are not affordable; we have every intention of figuring out how to repay it back later, but if it not affordable now it will not be affordable then. <em>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 pf@thenational.ae</em>
