I owe the banks almost Dh180,000 and was paying properly until 2016, when I lost my Dh10,000 a month job at a multinational company. I struggled to get another job for four months before eventually joining the insurance sector to secure some income. While I was unemployed, I used savings to make my repayments. I signed up for the credit cards to make online purchases and for the loan to clear fees from my degree; some of it was also given to my family. In total I owe:
Loan 1: Dh90,000
Credit card 1: Dh60,000
Credit card 2: Dh20,000
Credit card 3: Dh7,500
I now earn Dh6,000 and stopped repaying my loan and credit card 1 in July last year and the other two cards in December. I started receiving threatening calls and letters and even sought help from charity organisations but they could not help. I am Pakistani but was born in Dubai and have lived here my entire life. I do not want to leave the country and want to keep my name clear as I have never been in such a situation before. My monthly expenses are:
What can I do? SZ, Dubai
Debt panellist 1: Kunal Malani, head of customer value management at HSBC
It is important you understand and acknowledge the underlying issue, and make a promise with yourself to resolve this once and for all.
It is evident that you have borrowed far in excess of your ability to repay. Whenever circumstances change (i.e. income reduction, loss of employment) it is best to contact your creditors immediately to discuss your situation and together work on suitable repayment arrangements.
Stopping repayment of your debt obligations altogether is not the right move.
Reach out to the banks you are in default with and discuss debt consolidation options. Communicate your intent to repay the obligation and always be transparent about your financial circumstances to reach the right arrangement. For example, provide the lender with all necessary documentation to evidence your financial situation.
Among some of the options, they may suggest you pay a small lump sum up front as goodwill, and then restructure the rest of your outstanding loan. The interest rate on credit cards is typically higher than that on loans therefore you may also consider including outstanding amounts from your credit cards in this restructured plan.
Your current level of outstanding debt and ongoing repayment obligations plus expenses against your income, are unsustainable. You need to look at ways to reduce your monthly expenses. For a short duration, until you are able to bring down your debt obligations to a manageable level or find a job with a higher salary, you may want to consider reducing the amount you spend on family upkeep by half. There are many cheaper telecoms packages available out there; Dh500 on your mobile phone sounds high.
To further reinforce your discussions with the bank, if it is possible you may consider arranging to dispose of some personal assets you might have either here or back home to help contribute to repaying your obligations.
Most importantly, since you have accumulated large debts on your credit cards, consider cancelling them as soon as you pay them off. This may even be a condition by your bank for granting you a debt consolidation loan.
Readers should note that since the launch of the Al Etihad Credit Bureau, banks in the UAE have been reporting defaulters to the bureau for the last two years now. Listed defaulters are unlikely to get further credit in the UAE. This is a positive step to help banks and customers discuss and manage individual debt obligations better.
Debt Panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
The amount due on your personal loan and on the three credit cards is almost the same. However, if left unpaid your credit card debt will multiply much faster than the loan due to the significantly higher interest rates on the cards. Therefore you must prioritise repayment of your credit card debt first.
A good way to tackle your credit card debt would be to settle the outstanding balance in full, one card at a time. You can adopt the "Debt Snowball" strategy, wherein you use your savings and any extra cash you can come up with to pay off the smallest debt first. Make sure that you close the fully repaid credit card account before moving on to the next one. You must also keep making the minimum payments on the remaining credit cards to avoid incurring late payment penalties.
It would also be a good idea to negotiate with the bank to work out a revised repayment arrangement for your personal loan. You could propose an extension in loan tenure, which would automatically lower your monthly installments. But you must try to negotiate a lower interest rate as well, to keep the total cost of the loan as low as possible.
The bank may ask you to settle the debt in full, and if you can somehow manage to raise the funds through friends and family or liquidation of savings, you might be able to cut a deal with the bank, with some or all of your interest and penalties waived.
On the personal front, have you tried to cut your expenses? Your income has been slashed by 40 per cent, so you must aim to reduce your expenses accordingly. Adopt a strict budget and bring your basic living expenses to the bare minimum. Since half of your salary goes towards family support, can you cut back on this? Can another sibling or close relative pitch in to financially support your family? Explore all avenues to stretch your income and make every dirham count.
Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com, which helps people invest their money sensibly
Unfortunately, there are thousands of other UAE residents in a similar situation. You want to keep your name clear but when you stopped repaying your debts it would be noted by your banks and the Credit Bureau. You also say you were paying properly until 2016 – I suspect you were making the minimum payments every month. This makes you highly vulnerable if anything goes wrong, such as losing your job, and others reading this should take note.
Currently your expenses total Dh6,000, which is your salary, making it impossible to pay any debts without major changes.
First, you must call the banks or visit them in person, and try to speak to the most senior person you can. You cannot hope they will just go away. Ask for a consolidation loan to cover as many of your cards as possible, with a clear time frame and monthly payment for paying it off. Meanwhile do not take out any more loans or use your credit cards
Two aspects of your monthly expenses stand out. Your mobile bill is twice mine – a data and international minutes package should slash this. Also you cannot really afford to send Dh3,000 per month to support your family. Have you been honest with them about your situation? Is there anyone in the extended family who can take some of the pressure off you, by supporting your family or lending you money? Even Dh1,000 extra a month would allow you to start paying off some of your debt.
Keep looking for a higher paid job and find other ways to supplement your income. If you find a job with a multinational company, renegotiate your debt as the interest rates should come down significantly.
The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to firstname.lastname@example.org