My credit card debts are out of control and I do not see a way out. I have lived in the UAE for almost two years and earn Dh8,000 in the accounting and finance industry. I borrowed the money when my wife gave birth to our son back home in Cameroon. This along with other responsibilities made me unable to keep up with my credit card payments.
I was managing OK until January this year when additional charges were applied, such as cash withdrawal charges, took the balance over the limit. My debts are:
Card 1: Dh35,172 (the limit is Dh32,000)
Card 2: Dh12,385 (the limit is Dh15,000)
Card 3: Dh23,713 (the limit is Dh20,000)
In addition I have other personal debts as below:
Company loan: Dh2,666
Other personal debts:Dh10,000
In recent months I have managed to make the minimum monthly payments, though this has not been enough to reduce my debt below the limit. I am now overdue by a month on each card. I have made countless attempts to secure a loan to close the credit cards and focus on one fixed monthly loan repayment. However, due to my low rating with the Al Etihad Credit Bureau, I have not been successful. One of the banks has sent me several notifications and threatened to blacklist my account and take action against me. This could further jeopardise my situation and possibly land me a jail term. My monthly expenses, including bills and remittances, average about Dh3,500. I have been trying to research ways to relieve my debt. Would a debt consolidation plan work for me? DB, Dubai
Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com
Let's focus on the root of your debt problem and discuss how your credit card usage is making you sink deeper into debt. First of all, you've been putting the bare minimum towards your monthly credit card repayments. With annual interest rates hovering close to 40 per cent, this makes it very difficult for you to get rid of the debt.
As of now, you're already behind on your bare minimum monthly payments. Considering the credit card late payment fee ranges between Dh200 Dh300 across most banks in the UAE, you're only going to end up expanding your outstanding balance if you delay any more payments. You've also exceeded the credit limit on two of your credit cards, which makes you liable to pay the over-limit fee as well. This fee is around Dh200 to Dh300 at most banks too.
You mention that your credit card providers have also levied a cash withdrawal fee. A cash advance fee at most banks is about 3 per cent (or higher) on the amount withdrawn. Additionally, what makes cash withdrawal on your credit card even more unfavourable is that there is no interest-free period on such transactions. This means interest will start accruing right from the date you withdraw the cash, and the applicable rate could even be higher than the standard interest rate on your card.
These hefty penalties coupled with a high interest rate are only going to make repayment more challenging for you.
So what's the way out? You could approach your card providers, explain that you're unable to keep up with your repayments, and request them to restructure your outstanding debt into a fixed-interest fixed-tenure loan. This will help contain the damage caused by hefty interest payments.
You could also look for a credit card with a balance transfer facility, preferably one that offers you a zero per cent interest rate on the amount transferred. But since these offers are valid for an introductory period of say three to six months, you must try to repay all or the majority of your outstanding balance during this interest-free period to actually take advantage of the offer.
Your current financial situation also calls for extreme budgeting. Review your expenses and try to cut back wherever you can. Every dirham saved counts. Since you've exhausted all conventional debt options, consider using your savings to repay some of your most expensive credit card debt.
Debt panellist 2: Shaker Zainal, head of retail banking at CBI
You are correct in your approach to resolve your short-term financial distress, it would be recommended to consolidate your existing debts into a longer tenure, lower interest personal loan. Credit card interest rates tend to be higher and there are also excess limit usage charges applicable for cards.
Your best option is to approach the bank, where your salary is paid to, and apply for a personal loan. It is important to arrange a tenure long enough to reduce your monthly instalments to a serviceable level. You should explain to the bank that until your expenses were increased by the birth of your baby, you had been a borrower with a good track record and provide them with your relevant account statements to validate this.
You have mentioned that previous attempts to apply for a loan have been unsuccessful, so you might wish to offer the bank your end of service benefit as collateral. This would increase the likelihood of your loan application being approved. Since your end of service benefit will be credited to the same bank, where your salary is being paid to, it makes sense to make your loan application to them.
Another option is to ask for a top-up company loan or advance salary payment from your employer, as your outstanding loan amount of Dh2,666 is relatively low, compared to your Dh8,000 salary. If you manage to get additional financing from your employer, you must prioritise payments to card 1 and card 3, as you are currently incurring excess limit charges on them.
Selling assets back home or in the UAE is always another option you should consider, to help reduce your financial distress and get your finances back under control.
Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com, which helps residents invest their own money
You have been trying to fix your situation and you need to keep trying – every month that goes past will add interest to your debt. Credit cards have a very high interest rate, so you need to pay down the balance as fast as possible. For example, an interest rate of 3 per cent per month is equivalent to just under 43 per cent per year.
A debt consolidation plan is very important for you to get out of this situation. Your salary of Dh8,000 is just on the borderline for what is accepted but your low credit bureau rating due to missing card payments will count against you.
Talk to all your banks proactively and seek out the most senior and relevant person to talk to. Show them you have a clear intention and plan for paying off your debt. If your salary bank won’t give you a consolidation loan, maybe another bank will if you transfer your salary to them.
Talk to your company about the possibility of extra work, getting a raise at the end of the year or taking out a further advance on your salary to help pay down some of the debt. Consider also looking for another job that pays more money, especially a company that has a good relationship with the banks. See if you can help small businesses or individuals with their finances during evenings and weekends, in order to make more money.
Sell unnecessary assets if you have any and see if any friends or family can lend you some money at a lower interest rate. You may be able to reduce your monthly expenses and save more if you reassess your rent, transport and food.
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