I currently owe Dh386,000 for one personal loan and four credit cards. I work in Dubai as a sales planning manager and earn Dh14,240. With my current salary I am finding myself unable to make all the payments. I stopped using my cards a few months ago. I took the loan to buy a home in India and the cards I used for some medical treatment, my child’s school fees and other expenses. The outstanding balances on my cards are high because I was not able to make my payments on time and the banks charged me late payment fees and other fines. I have signed up for an easy payment plan for my all cards but still I find it hard to meet the payments. To reduce expenses I have sent my family back to India. I owe about Dh250,00 on the personal loan, and the rest is on my credit cards. One of the four has an outstanding balance of Dh56,000 another of Dh40,000 and another of Dh32,000. Is there any way a bank can help me consolidate the debts into one payment? This will make my life easier, as I am in too much stress at the moment. AP, Dubai
Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com
Based on the total debt you currently owe and your monthly salary, it would be difficult to qualify for a conventional debt consolidation loan. However, it is worthwhile to check with your primary bank to see if the credit card debt on your four cards can be consolidated. Alternatively, you can approach the four credit card providers to discuss how the outstanding balance on the cards can be restructured and converted into a fixed-interest fixed-tenure loan. This would also stop the accumulation of monthly interest and penalties.
You’ve also made the right decision by relocating your family back home, which should help cut your monthly expenses significantly. You must now make debt repayment your top priority and make sure you start with settling your credit card bills first. The longer your credit card debt lingers on, the more difficult it will become to pay it off, owing to the high interest rates being charged.
If the debt consolidation or debt restructuring options don’t work out, you will have to figure out the fastest and most cost-efficient way to repay your debts. You could either employ the debt stacking repayment strategy (where you pay off the debt with the highest interest rate first) or the debt snowball strategy (where you pay off the smallest outstanding debt first).
If making cutbacks in your household expenses doesn’t free up enough cash to make the repayments, look for alternative ways to supplement your income. Can you freelance over the weekends? Can your employer extend a short-term interest-free loan to you, or offer you a few months’ salary in advance?
Debt panellist 2: Philip King, the head of retail banking in the UAE at Abu Dhabi Islamic Bank
In these circumstances, when your total debt is more than 25 times your monthly salary, your priority should be to speak to your bank to agree a sustainable schedule of repayments. Clearly this is not the case with your current payment plan. Unfortunately, your situation is a prime example of the dangers of using credit cards as a long-term financing instrument rather than for smaller purchases that can be paid back at the end of each month.
While your approach to consolidate your Dh136,000 credit card debt into a single facility is the right one, you will need to work hard to lower your total level of debt through careful management of your current expenses. Paying for medical treatment and school fees and then buying a house, in quick succession has probably led to this repayment crisis. At this point, your best option would be to ask the bank where your salary is getting transferred to consolidate the debt.
The Debt Panel brings together four financial experts: Philip King, the head of retail banking in the UAE 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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