I work as a finance manager for a contracting company, earning Dh22,000 a month. I have built up Dh450,000 in debts following an emergency with a family member in Jordan. When it happened in 2012, I withdrew all the available money I could and sent it home. Later I tried to top up a loan but due to my high liabilities the bank refused. The debts have now increased further due to the high interest. At one point I was withdrawing cash from one credit card to deposit on another. I also lost my job for six months, adding to the problem. I pay Dh5,500 for my loan and have stopped repaying the three credit cards as the bank charges are extremely high. I would like the debts to stop bleeding and be able to pay them off in one go. I tried to consolidate the debts with my primary bank but because I had already consolidated a loan and credit card together, they consider me a defaulter so cannot lend me any more:
The debts I owe are:
Credit card one: Dh65,000
Credit card two: Dh50,000
Credit card three Dh50,000
Borrowings from friends: Dh150,000
My monthly expenses are:
Fuel / utilities / miscellaneous: Dh3,000
Family support: Dh4,000
I am looking for a solution to consolidate all my liabilities into monthly repayments of Dh9,000. Is this possible? HS, Dubai
Debt panellist 1: Philip King, the head of retail banking at Abu Dhabi Islamic Bank
It sounds like you have been living in debt for many years after remitting money back to Jordan in 2012, and this has now built up to an unsustainable level.
Crises are intrinsically expensive and, where possible, we recommend people set aside a portion of their savings as a dedicated emergency fund to prepare for such an eventuality, even if they already have insurance policies in place. In your case, you have taken out bank loans, cards, as well as borrowing from friends as you fell into a downward debt spiral. The fact that you had to withdraw money from one card, which for most banks carries a significant charge in itself, to deposit onto another should have been a major warning sign that you were in financial strife.
Repayment rates have increased pressure on your finances to the extent that you can no longer afford card charges. Refusing to pay charges is not an option though. Banks have acted prudently in not topping up your loan as your ability and willingness to repay is now in question. You must show a dedication to resolve this as soon as possible.
You’re right that the best approach is to speak to your bank to try and consolidate your debt into a simple monthly repayment programme. I’m afraid that your friends should rank bottom in terms of your priority ranking for who to repay first.
Your credit card debt of Dh165,000 is very high and, as you already know, will be costing a lot just to pay the monthly interest without eating into the debt itself. It depends on whether these cards are all held with a single bank, or whether they are held with different banks, as to whether you will be able to secure a consolidating loan.
Naturally, banks want to have visibility of their customer’s debt exposure and, in your case, want to be sure that such a loan would be used to pay off the card debt rather than burdening you with more liabilities. If banks can see your full portfolio of liabilities and are confident that you will consistently make repayments on time, they are able to offer you a loan of up to 20 times your monthly salary, or Dh440,000 in your case.
Compared to many Debt Panel correspondents you have a healthy salary, but you have to aim to reduce your expenditures and make every effort to meet your repayment obligations. This will take discipline and you face a long uphill climb. Even if you are successful in renegotiating and consolidating your loans with banks into a monthly Dh9,000 repayment scheme, it will take over four years to become debt free. Selling luxuries or disposable assets you may have will help eat into this overall sum and should be considered.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
Excluding what you owe to your friends, you owe a combined Dh300,000 to the banks. Considering that you earn Dh22,000 a month, this pushes your Debt Burden Ratio (DBR) into the risky zone. Since loan consolidation with your primary bank is out of the question, you can consider two other options to help you manage your repayments better.
First, approach the remaining banks that you have credit cards with, to request for a loan consolidation. This is not going to be easy, given your repayment history. Be prepared to transfer your salary to another bank since that's a primary requirement for debt consolidation.
Second, speak to the credit card providers to convert your outstanding credit card debt into fixed-interest fixed-tenure loans. This will put a stop on the financial drain towards hefty interest payments that's driving you further into debt.
You have mentioned that you stopped making payments on your credit cards. This is a big financial mistake, because the exorbitant interest rates and late payment charges will multiply your debt and make it even more unmanageable in the future. You have to speak to these individual banks and resume making the minimum payments on all three of them, while trying to negotiate a restructured repayment plan. And since the interest rate on the credit cards is much higher than your personal loan, it makes financial sense to pay off the cards first.
Looking at your expenses, you have to figure out a way to trim them too. Move to a cheaper accommodation to save on rent. And as difficult as it may be, you must put a temporary stop on the remittances to your family, or at least reduce these remittances for the time being. You have to fix your own financial situation before you try to help others. Consider taking financial help from another family member or close relative for a few months until you sort things out here.
Ask your employer for a salary advance or an interest-free loan for a short tenure. If you're able to procure this, you can use the funds towards settling at least one or two of your credit card accounts. Negotiate with the banks to waive the late payment fees and penalty interest in return for a lump-sum cash settlement towards the credit card debt.
Debt panellist 3: Michael Routledge, a debt adviser
Well done for realising you have a problem with debt and making the first move to address the issue.
Firstly, you need to create a statement of accounts that lists all of your income, expenditure and credit card/loan payments. It is always a good idea to have everything documented so it is easier for your lenders to see your current financial position clearly.
Once you’ve prepared your statement of accounts, make an appointment with each lender and go to see them to explain your current predicament. Then ask that they review your case and see what sort of rescheduling agreement they might be able to offer.
If the banks refuse your restructure requests and you cannot afford the payments, another opportunity for you to seek assistance would be to visit the Central Bank of the UAE website. There, explain your financial predicament (using your statement of accounts) and any difficulties you are facing securing a restructured deal. I am assuming your DBR is over 50 per cent so they may assist you in encouraging your lenders to reduce your DBR to a more acceptable level.
You mentioned in your email that you pay Dh4,000 for family support. I’m assuming that this is your spouse and/or children, as if it your greater family (parents, cousins etc.) this will not be viewed as a legitimate cost of living by your lenders. You also stated that you owe Dh150,000 to family and friends. Hopefully your family and friends can support you by allowing you to pay the lenders charging interest interest before you pay them back (assuming you’re not paying them interest too).
Not to sound like a broken record, but this is going to be a lot of hard work, and will require a lot of persistence on your part, so knuckle down, get started today, and before you know it you’ll be debt free.
On this panel this week: Philip King, the head of retail banking at Abu Dhabi Islamic Bank; Ambareen Musa, founder and chief executive of financial comparison site Souqalmal.com and Michael Routledge, a UAE-based debt adviser
The Debt Panel is a weekly online column to help readers tackle their debts more effectively. If you have a question for the panel, write to email@example.com.