The Debt Panel: Dubai accounts manager ‘suffering’ with Dh100,000 on credit cards and a loan
I earn Dh12,000 a month as an accounts manager and have five credit cards from five different banks with outstanding balances of Dh103,500. I also have a loan on which I make monthly payments of Dh5,400. I want to settle the credit cards as soon as possible with a single loan. However, no bank is giving me a loan. I am from India and borrowed this money for my cousin to help him set up a business, however his business has now flopped. If any bank gives me a loan, I can then pay and settle the cards in one go. I am suffering because there are too many financial charges and late payments fees on the credit cards. AJ, Dubai
Debt panellist 1: Ambareen Musa, the founder and chief executive of Souqalmal.com
The Dh5,400 monthly instalment on your personal loan alone takes your Debt Burden Ratio (DBR) close to the 50 per cent limit prescribed in the UAE. Then there’s the Dh103,500 outstanding balance on your credit cards which is multiplying every month owing to the high interest rates on UAE credit cards, close to 40 per cent per annum, on average. This will most likely make consolidating all your debt a problem, so here’s an alternative solution.
Is your loan a salary-transfer one, taken from your primary bank? If so, you can approach your bank to consolidate this loan along with say two or three (if not all five) of your credit cards that are charging the highest-interest rate. This will help stretch the tenure of your personal loan, thereby lowering your monthly commitment. At the same time, it will also convert your outstanding credit card balance into a fixed-interest loan. So you’ll just have one combined monthly instalment to worry about.
You can also approach other banks offering a debt consolidation facility, but keep in mind, you will have to transfer your salary to be able to qualify.
In the meanwhile, you must try to explore all other options on the personal front. Can your employer offer you financial aid in the form of an interest-free loan or salary in advance? Or maybe, you could get a short-term loan from a close family member, that can be used to pay off the outstanding balance on your most expensive credit cards.
Debt panellist 2: Keren Bobker, The National’s On Your Side columnist and an independent financial adviser
I see far too many cases of people with multiple credit cards and my first question is always why? Why do people take out so many cards, most with an annual fee and a high rate of interest, and then borrow money when they know that they do not have the means to repay it? The responsibility lies with the borrower and if they have lost out due to the business of another person failing that is not the bank’s problem, nor will they be interested.
I doubt AJ is suffering “because there are too many financial charges and late payment fees” but because the issue is that she has borrowed more money than she can afford to repay. It cannot be a surprise that there is interest to pay along with fees and late payment penalties as these are all set out in the paperwork when applying for credit and everyone ought to be reading this documentation. It is no secret that this is a serious issue in the UAE and individuals have to take responsibility. It is slightly different if someone is made redundant but this is not the case here. After all, banks are businesses and if borrowers default on payments when they are still working it makes things harder for those in genuine financial difficulty. I may sound harsh but there are too many who have borrowed money they cannot afford to repay, mostly when it is not essential, and yet are blaming everyone but themselves for the problem.
Under Central Bank rules that came into effect in 2011, the debt burden ratio must be no more than 50 per cent of a person’s income. This is defined as the ratio of total debt to total income, expressed as percentage. The existing loan is already 45 per cent of income and there are credit card payments on top. I appreciate that the loan is wanted to settle the cards but any further borrowing would take AJ above the limit and banks are simply not permitted to do this these days. The interest rate on a loan is lower than on a credit card but that does not matter when it comes to the bank’s lending limits. AJ will have to make inroads into the debt herself, either by increasing repayments on the cards so that she actually reduces the balance rather than just paying off interest every month or seeking repayment from her cousin for the money owed. It is important that she makes payments on a timely basis as late payment fees will only make her situation worse and non payment can have criminal consequences.
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 email@example.com.
Updated: November 15, 2016 04:00 AM