I am a 28-year-old father with a one-year-old child. My monthly income is Dh11,000 and I pay a Dh5,353 monthly instalment for a personal loan that I took recently to close another car loan. The personal loan has an outstanding amount of Dh36,000. The problem is that of the Dh5,647 remaining from my salary, I have six credit cards with five banks with total outstanding balances of Dh73,500. I don't really know how I will repay these debts without a reschedule and help from these banks. IM, UAE
Debt panellist 1: Jamal Alvi, chief credit officer at Abu Dhabi Islamic Bank (ADIB)
The customer is clearly paying more than he needs to each month. If the outstanding on his personal loan is Dh36,000 and he has another Dh73,500 on cards, he could consolidate the full amount into a single facility of Dh109,00 over 48 months with an instalment of possibly less than Dh3,000 per month, rather than pay Dh5,353 per month on his loan and another Dh3,600 (5 per cent of card balance) for his cards. However, to get the best rate - which would keep the monthly instalment at a reasonable level - he would need to approach the bank where his salary is currently being transferred. They should be able to consolidate his loan and external card debt into a single facility, which would ensure his total debt burden stays within 50 per cent of his salary.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
Based on your current financial situation, a debt consolidation loan could be a possible solution. With this option you can merge your entire debt into one loan including your all your six credit cards with outstanding balances totalling Dh73,500. Start by contacting banks offering debt consolidation loans such as ADIB and Dubai Islamic Bank. Depending on your profile (ie place of work, salary and length of service), banks might be able to merge your debts into one balance where you can start paying them off.
Even though refinancing your debt is a possible solution, bear in mind that it can also create more problems for you especially if you don’t address your spending habits. Make sure, applying for this new loan is a better option than the current situation you’re in. While your repayments might be more manageable, your consolidation loan could extend over a longer period for which you will have to pay interest - however if used widely, it can give you more breathing space.
Another alternative is to use the balance transfer facility on your credit cards where you can pay all your outstanding balances by transferring them to just one credit card. Aim to move your balance to the credit card which has the lowest interest. Also, ask your bank if you can get 0 per cent interest on your balance transfer for at least a certain period of time. However, watch out for any processing fee which may apply to avail of this service. Very often to transfer the balances from other cards to one card, there is a processing fee of around 2.5 per cent so make sure you are aware of all the fees involved.
If banks are unable to offer help, look for ways to increase your income by either asking for a pay raise, looking for a new job, asking friends and family or freelancing. Maybe you can sell assets such as property or jewellery to at least get enough cash to pay off your Dh36,000 loan. However, be aware of the early settlement fee your bank may charge. As mentioned earlier to become debt free, address your spending habits and see where you can cut corners
I would really encourage you to talk to your bank and ask them for a restructure. The longer you wait the more interest you will pile up and the problem is just going to get bigger. Identifying that you are in trouble is a good start and now you need to take action.
The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank (ADIB); 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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