I have debts of about Dh130,000. I have two credit cards, both of which have been maxed; there is a Dh10,000 limit on one and Dh40,000 with another. Then I also have an Dh80,000 loan with a bank, which I have paid for almost a year now. I am only earning a monthly salary of Dh5,000 and have been really struggling to repay all my debts. I have already flunked two months of payment on one of the credit cards and have been sent an email about a police case. I stopped answering calls because it was destroying my peace of mind. I have just been piling up my debts even more as I have been borrowing from friends as well to get by. I cannot sleep at night and am haunted by this financial problem. I am full of regret on how I am not able to manage my finances properly. I was tempted by this "invisible money" to spend on things, experiences and people. Now I want to move forward and begin again. I miss my happy vibe and positive outlook in life. I am trying to get debt consolidation but the banks cannot assist me because of the EMI rule. Is there any bank I can get a debt consolidation service from if my company is not listed? I would like to pay back Dh2,000 to Dh2,500 per month for more than four years. What is the most effective way to deal with this situation? A life with no debt is what I pray for and look forward to, but I don't know where to start. I don't want to go to jail. I don't want to lose my job in HR. I want to be able to pay my debts. RS, Dubai
Debt panellist 1: Keren Bobker, The National's On Your Side columnist and an independent financial adviser
A person with an income of Dh5,000 per month should not be able to take out credit cards and loans for a total of Dh130,000. This is well in excess of the limits specified by the UAE Central Bank. In 2011 Bank specified that 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.
If someone already has debts exceeding the UAE guidelines they are not likely to be able to refinance as banks are limited in what they can lend, and indeed should limit what is lent to the unwary. It sounds as if RS has fallen for the UAE hype of “spend, spend, spend” and while banks may seem overly keen to lend money, individuals must also take responsibility for their actions. Any money that has been borrowed must be repaid.
The consequences of not repaying debts in the UAE are severe. Not answering the phone to a bank to whom money is owed, while understandable as the banks could certainly improve how they speak to customers, is really not going to help the situation.
She must speak to the bank that has registered the police case and discuss what repayments she can make. If the loan is over a short term she may be able to renegotiate the time frame, restructuring it over a longer period to reduce the monthly repayments, although she must be aware that she will pay more in interest. Does she have anything that she can sell to make the missing payments to show goodwill? Can any family members assist to enable her to manage the debts?
There is never a quick fix, but burying her head in the sand will not make the problems go away and will only make matters worse. She has to face up to the debts, try to negotiate with the banks and make every possible effort to make whatever payments she can to try to avoid the situation becoming even worse.
Debt panellist 2: Ambareen Musa, the founder and chief executive of the comparison website Souqalmal.com
Let’s start with the silver lining. You are aware of what got you into this debt problem and want to start afresh. You’re also willing to change your spending habits for the better.
Now, let’s look at some facts. You’re working for a non-listed employer earning Dh5,000 a month, and you owe Dh130,000 in debt. While this makes getting a conventional debt consolidation loan difficult, here’s what might help.
Renegotiating your loan terms and repayment schedule is a possibility. Get in touch with individual banks and explain your current financial situation and intentions to them. Banks can waive late payment fees and other charges, or extend the loan tenure based on their discretion. You can also speak to the two credit card providers about converting the outstanding amount on your cards into a fixed tenure loan. This will help you cut down heavy interest payments.
Since you already have a personal loan, presumably a salary-transfer loan from your primary bank, you can approach this bank first to see if they can consolidate all your debt. The idea here is to consolidate your existing loans and credit card debt into one loan. This option is most effective when the new interest rate is considerably lower than the average rate of all your debt combined.
Apart from approaching banks, are there any close relatives who can offer you financial assistance? An interest-free loan from a family member or your employer can help you close your outstanding credit card debt.
The next step is to focus on the follow-up. Once you’ve figured out a repayment strategy, you must cancel both your credit cards, since the temptation to overspend is what got you here in the first place. From there on, you must follow a strict budget and treat debt repayment as your biggest financial priority.
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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