I owe Dh24,900 on a personal loan and two credit cards and need a solution to resolve my situation. My debts are: (outstanding balance / monthly payment)
Personal loan: Dh17,400 (Dh1,232)
Credit card 1: Dh5,000 (Dh250)
Credit card 2: Dh2,500 (Dh125)
Total: Dh24,900 (Dh1,607)
I signed up for the loan and first credit card in July last year for a family emergency from a lender that does not require borrowers to be employed by a listed company. The second credit card was from a UAE bank, which placed a low limit on the card because my company was unlisted.
I earn Dh7,250 a month working in technology services and my monthly liabilities do not cross 50 per cent of my monthly income. My credit score at Al Etihad Credit Bureau is 630.
Keeping in mind that I pay my liabilities on time or sometimes just with a few days delay, I am looking for a buyout loan for all the above with a top up of Dh30,000. I cannot obtain this from regular banks as my company is not registered with any lenders in the UAE. The top-up would help clear some urgent requirements for my wedding.
When I missed the payments on my existing debts, I always made them up within two or three days. Only four or five payments were delayed and I have never missed any payments altogether.
I live with my family so I don't pay for rent or groceries. However my bills include Dh400 a month for my phone bill and between Dh500 to Dh1,000 for transport. I am 33 and from Sudan. How can I secure this extra Dh30,000? MS, Dubai
Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
Some UAE banks provide personal loans for employees of non-listed companies, but may impose stringent guidelines including higher minimum salary requirements or solid proof of a stable income source. The lender may also levy comparatively higher interest rates or cap the maximum financing amount.
You can obtain a personal loan once you meet their specified eligibility criteria based on your credit history and credit score, which are all indicated in your AECB report.
While your current debt burden ratio (DBR) is less than 50 per cent of your monthly salary, there are other factors that may weaken your chances of obtaining a loan. As you mentioned, you have missed a number of repayments in the past, and despite being late by only two or three days, this will have a detrimental impact on your credit report.
Your low AECB score of 630 may have also been weighed by your credit utilisation ratio, the percentage of your credit card balance to your total card limit. If you are only paying the ‘minimum amount dues’ on your credit cards, you are not reducing your total outstanding balance, which in turn, does not help your credit score to rebound.
Before incurring any further debt, your focus now should be rebuilding your creditworthiness by ensuring you maintain a positive and consistent payment history.
Looking at your current budget, it appears that you still have some savings which you could either use for your wedding expenses or direct towards closing your current obligations.
Debt panellist 2: Steve Cronin, founder of DeadSimpleSaving.com
You are looking to escape from your debt problem by taking on more debt. This is not the path to take, otherwise next year you will be looking for a top-up loan of Dh100,000. You need to focus on clearing your existing debt rather than taking on more.
Maybe your wedding will have to wait until you have a more stable financial situation. Of course nobody wants to hear that, but you need to reassess what a wedding truly needs, as a celebration of a couple’s love rather than a display of family wealth (or debt). Or delay it until you have money saved up to spend on the big day.
As your salary is below Dh8,000, it is unlikely you will be able to get a buyout loan. The priority is to pay off your card balances, as these will grow rapidly. By my calculations, you have Dh3,000-Dh4,500 left over every month after paying your bills, loan instalment and minimum card payment. So put that towards paying off your card bills and you should pay them off completely in three months. Try to reduce your expenses as much as possible, for example switch mobile provider to get a much better package.
If for some reason you cannot manage that then ask your family to either pay off the cards or lend you the money to pay them off. It was family that got you into this situation, so they should be able to help you now,
You cannot allow yourself to miss payments. It doesn’t matter if they are a couple of days late. Your credit score will be healthier if you make your payments on time, and banks will be more sympathetic to helping you.
If you are struggling on your current salary, look for a new job that will get you over the Dh8,000 level. Ideally aim for a company large enough to have good relationships with the banks — then they are more likely to lend to you and at a reasonable rate. But get out of the habit of building your life through debt. Work hard, reduce your expenses, then save and invest as much as you can.
Debt panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com
This is a bit of a Catch-22 situation. Working for a company that's not listed with banks in the UAE will limit your chances of finding a debt consolidation or buyout option.
It would make sense to reach out to your current lender and request a loan top-up. This bank has first-hand experience of your repayment track record. And since this particular bank offers loans to employees of unlisted companies as standard practice, there's no harm in approaching it first. It would be even better if you can negotiate with the bank in favour of consolidating its existing loan and credit card, before topping up the combined loan.
Such unsecured loans, however, do not come cheap. The bank will counter the additional risk by offering you a loan at a significantly higher-than-average interest rate. You'll also have to be realistic when speaking with the bank. You may be able to top up your existing loan, but the additional loan amount may not be as high as you're hoping for.
But even before you consider taking on additional debt, there's another factor to consider — you are not consistently meeting your existing monthly repayments by their due dates. This may be a signal that you're already struggling to repay the debt you currently owe, with any extra debt obligations leaving you with even tighter finances.
There are several ways to boost your income and save more to ease your financial situation, such as additional shifts, overtime work, part-time or freelance assignments. These can all increase your earnings, therefore helping you repay all your debts on time, and even taking away the requirement for additional debt. A salary advance from your employer, a small interest-free loan from close relatives, liquidation of some old assets or investments back home are other routes to extra cash without going down the debt route.
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 email@example.com