I am in a horrible situation as I owe Dh144,000 on five credit cards. I borrowed the money for family reasons, such as the wedding of my sister and to build a house in Kerala, India. Now all the cards are over the limit and I am unable to pay the minimum amount. This is partly because my salary was reduced by 20 per cent from Dh9,300 to Dh7,400 a month, as the Dubai company is in financial difficulties. My debts are:
Credit card 1: Dh12,350
Credit card 2: Dh37,000
Credit card 3: Dh70,000
Credit card 4: Dh16,500
Credit card 5: Dh8,000
I am paying about Dh5,000 a month to clear the credit card balances, but they are not going down. On top of that my monthly expenses without debt repayments come to Dh3,550 and include Dh2,200 for rent in Sharjah, Dh600 for transport and Dh250 for telephone; the rest of my expenses, including groceries, are less than Dh500. I am also receiving threatening calls from the banks — mainly on the cards with high limits.
Now I need to consider the cost of sending my daughter to school, as she is four. My wife and two children are now moving to the UAE to live. I would like a consolidation loan from the banks but my company is not listed. Also, I've missed a few payments so my credit score came down and the banks will no longer provide me with credit. If I had financial assistance, I could repay up to Dh3,000 a month. Please help me on this issue. ZA, Sharjah
Debt panellist 1: Shaker Zainal, head of retail banking at CBI
Credit cards are mainly payment instruments designed for expenditures or for short-term financing needs. As they tend to have relatively high interest rates and other costs such as late payment and limit excess fees, it is not advisable to use credit cards for longer term financing needs, which is what has been causing you troubles. Depending on what the need is, a personal loan or home loan is better suited for long-term borrowing compared to credit cards.
There are also UAE regulations in place, which limit the total amount of monthly debt payments an individual can incur, to a maximum of 50 per cent of his/her monthly income. This is called the Debt Burden Ratio and you are well above the maximum threshold allowed. This means you can no longer get additional credit from banks until you either bring down your monthly debt payments or increase your monthly income to sufficient levels.
Taking all of these into consideration, you should decrease your debts through funds outside bank financing. If you have assets readily available for sale, consider selling them, either in the UAE or in India. Also, consider borrowing from your family members or friends to help with your financial distress. To increase your household income, your wife should also seek an employment opportunity when she arrives, which may help you stabilise your family’s finances.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
Credit cards often seem like the easiest way to finance purchases. Many cardholders routinely use credit cards to buy things they can't afford and spend money they don't have. After all, they're easy to apply for, without all the hassle of qualifying for an actual loan. But that's where most people mess up: they treat credit cards like loans. Unfortunately, these cards can be used as loans, but are unarguably the most expensive type of loan, thanks to the enormous interest rates charged on unpaid balances.
You've ended up with debt on multiple credit cards by going down this route as well. And now that the late payment fees, over-limit fees and penalty interest has started piling up, your original debt is going to multiply faster than ever. You're also not very far from getting intimidating calls from debt collectors.
The unfortunate reality of your situation is that since you were unable to close down these debts on your original salary, it's going to be an uphill battle to tackle them with a 20 per cent pay cut.
Let's start off with the most bitter pill to swallow. Is it really a good time to move your family to the UAE? Have you thought about how you're going to be able to afford the significantly higher household expenses as well as school fees? Bringing your family into a financially stressful situation could backfire if the higher living costs drag you deeper into debt.
Now for possible solutions: can you approach your primary bank to discuss a debt consolidation loan? If not, check with other banks that offer such a facility, although you will be required to transfer your salary to the new lender. Even if a bank is willing to consolidate three of your biggest credit card debts, it could prove very helpful. You'd be able to cut down interest costs drastically and stretch repayment tenure, making it easier to pay off the debt.
Alternatively, reach out to the individual card providers, especially those that have already started charging you over-limit fees. You can place a request to restructure the outstanding balance into a fixed-interest loan, which can help rid you of any future late payment/over-limit penalties as well as stop the accumulation of heavy interest.
It might also be a good idea to explore ways of improving your income-earning potential. Moving on to a new job that pays better or taking on some additional freelance or part-time work could get you the extra cash you need to meet your debt commitments.
Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com
As you have discovered, credit cards should never be used instead of personal loans or even a mortgage. The interest rate is far too high — it can reach nearly 50 per cent per year — and if you are paying just the minimum balance you will never pay off the full amount easily. You are in a difficult situation, as it may not be easy to sell your house in Kerala or get assistance from your family or your sister’s new family to help you get out of this mess if things get worse.
Missing the minimum payments will reduce the level of help banks are willing to give; resolve now to make all the payments like clockwork every month. Unfortunately, the missed payments will stay on your record for five years but make sure you can demonstrate to the bank a better track record of disciplined payment for as long as possible. Try to talk to a senior manager at the bank or find a company that specialises in loan support — this debt consolidation route will not be easy though due to your low credit score and company issues.
Your company is causing you problems because it is not listed and it is not doing well financially. For the sake of your family and your sanity, you need to look elsewhere for a job. The only reason to stay at your existing company is if you can push them to restore your salary or they get listed with a bank.
Polish your CV and make sure you have a good LinkedIn profile. Apply for every relevant job you see, especially with large companies that have better banking relationships. Go to business networking events and do training courses in the evening if you have to. Make yourself the best potential employee out there.
Meanwhile, see if you can earn any money on the side, even doing odd jobs for people with whatever expertise you have or doing tasks online via sites like fiverr and upwork. See if you have any assets that you can sell. If you have to sell your house and start again with building a new house paid for in cash or with a low-interest rate mortgage or personal loan, then so be it.
Is your wife able to do any kind of part-time work to support you? Is there anyone in the family who can lend you some money? Now is not the time to be proud and not ask for help — your initial intentions that got you into debt were always good.
You also need to reduce your expenses. Is now the right time for your family to move over? You may have to delay them until you sort out your finances. Reduce your rent and cut any non-essential expenditures. It will not be pleasant but you all need to pull together for a year or two. Every spare dirham needs to go towards paying off your card debt. If you have a clear focus, with everyone in the family understanding why times are tough, then you can all get through this.
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