The Debt Panel: 'I've been paying off the same loan for 10 years'

The cabin crew employee tops up his Dh460,000 loan every year and also owes Dh134,000 on five credit cards

Illustration by Mathew Kurian

I work as cabin crew, earning around Dh23,500 but I have a loan for Dh460,000 and five credit cards – all maxed out - on which I owe about Dh134,000. I am really struggling with the the high levels of interest, which is creating a lot of stress in my life. My debts are:

Loan: Dh460,000 with a monthly payment of Dh11,000

Credit card 1: Dh50,000

Credit card 2 and 3 (from the same bank): Dh30,000 and Dh12,000

Credit card 3: Dh22,000
Credit card four: Dh20,000
Total Debt: Dh594,000

Originally from Lebanon, I have worked for the same airline for 15 years and lived in Dubai for 17 years. I borrowed the money to help my family after they lost two houses in the 2006 war. I took on the first loan 10 years ago and have topped up the loan every year.

My salary goes towards debt payments and I use about Dh2,500 for living expenses such as food, petrol and everyday costs plus Dh375 for internet, Dh750 for my phone, and Dh1,750 for a rental car. My annual rent is Dh35,000 and my employer gives me an upfront rental amount of Dh70,000 to cover it, which is then deducted in Dh5,900 instalments every month. This leaves me with Dh17,000 a month for everything else, including trying to send money home to my family and paying off the debt. Whenever we stop in a city for work, we receive extra cash for the layover period to cover food, which I try to save from.

I am starting to miss some of the credit card payments; in the past I also borrowed from a friend – but they cannot help me anymore either. I have been stuck in this debt loop for a long time; I managed to close some credit cards before but then applied for new ones to help my family or for some personal problems.

I need a big salary transfer consolidation loan to close all the debts so that I only have one payment. However, the banks don't want to give it to me because my debt repayments are already more than 50 per cent of my salary. I want to find a way out of this and start saving some money. HK, Dubai

Debt panellist 1: Shaker Zainal, head of retail banking at CBI

Personal loans are typically designed to finance short-term cash needs. There is a Central Bank of the UAE regulation, which caps the maximum tenure of personal loans to 48 months. In your case, because you have been continuously topping up, each of your top-up loans was treated as a new loan, and hence you were able to rely on personal loan financing for 10 years.

Similarly, credit cards are designed to finance an individual's consumption expenditures in the short term. If they are used to finance longer-term needs, and the individual continuously pays the minimum amount each month, the situation can turn into a debt spiral, since they tend to have relatively high interest rates.

As a last resort, consider giving the bank a letter of commitment to give your end of service benefits as a collateral for the new loan.

The good news is that you have a job and have been working for the same company for the last 15 years, which strengthens your creditworthiness from a bank’s perspective. Your 17 years of total service and track record in the UAE is also an asset. However, your total debt is quite high relative to your income.

Your debt burden ratio is above 50 per cent. Your first priority should therefore be to bring down your overall indebtedness and reduce the interest costs you’re incurring. Since you have received an annual rental allowance of Dh70,000 from your employer and your annual rent is Dh35,000, this leaves you with Dh35,000 cash surplus. Use this to reduce your total credit card debts outstanding.

Once you have reduced your total debt exposure, engage with the bank that lent you the personal loan, which I assume is the same bank your monthly salary is credited to. Explain your situation and apply for a restructuring loan to consolidate all your debt obligations into a single personal loan with a long enough tenure.

As a last resort, consider giving the bank a letter of commitment to give your end of service benefits as a collateral for the new loan. Note that your current loan agreements may already give the bank the legal right to offset their loan receivables with your gratuity benefit, when you leave your employer in the future.

Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

You've taken the first step of acknowledging the severity of your situation. The next step is to take action. Obviously, it is the high-interest credit card debt that's left you feeling overwhelmed, so that's exactly what you need to tackle first.

Standard debt consolidation may not be the solution to your problems, not until your debt-to-income ratio is under 50 per cent. However, you can explore this option once you've managed to rein in some of your commitments. For now, let's consider the more feasible options.

Assuming the personal loan has been taken from the primary bank, ask the bank to consolidate all the debts owed to them - the loan as well as the total outstanding balance on credit cards issued by them. This can help limit the damage caused by interest drain on your cards. Opting for a zero-per cent balance transfer deal on a new credit card is another way to minimise interest payments. However, if the lure of a new credit is too much for you to handle, we suggest you skip this one.

You must also have a targeted plan-of-action to get rid of your debts one by one. The 'debt snowball' method may work wonders for you. Arrange your credit card debts in ascending order of outstanding balance and start using your savings to pay off the smallest balance first, working your way through the rest. Remember to stick to the minimum payments on all the other credit cards in the process to avoid incurring heavy penalties. Make sure you close the credit card once the debt is settled, to avoid ending up in the same situation again.

You must also keep a tab on your expenses. Since you're working for an airline, we assume they arrange your commute to and from the airport. If that is the case, return the rental car and make do with public transport for a few months. Also look for cheaper telecom packages to cut your mobile and internet costs, as your options seem at the expensive end of the spectrum. Also, while it's very noble to help your family, doing so at the cost of your own financial security is never a good idea.

Debt panellist 3: Steve Cronin, founder of DeadSimpleSaving.com

It is admirable to help your family in a difficult situation, especially after a war. However, you have to realise you are only one or two steps away from financial disaster. If you lose your job or keep missing credit card payments, you are going to be in a very difficult situation. It is time someone from your family, if at all possible, steps up to take care of them financially. Every single dirham of your salary needs to contribute to reducing your debt now otherwise you will face fines, legal action, blacklisting and being chased by debt collectors here or in other countries if you flee.

The growth of your debt, especially credit card debt, is outrunning your ability to pay it off in time. Credit card debt grows especially fast, because a rate of 3 per cent per month is actually 42.6 per cent per year due to the compounding effect of paying interest on interest. You must stop adding anything on to your credit cards and using them as a source of emergency cashflow. Ideally cut up all your cards or put them in a bowl of water in the freezer. This will stop impulse purchases.

The next year or two needs to be focused on getting out of debt, potentially at the expense of adequate support for your family and happiness for you. What can get you through this is knowing that you are doing this with a clear goal and direction. Every dirham in your life must now have a purpose. That will be paying for essentials, building a small cash buffer for nasty surprises, paying off your card debt and paying the monthly instalments on your loan debt. If you only pay the minimum on your cards you will never be rid of the debt. Target the one with the highest interest rate first.

You need to reduce your living expenses further and be very strict with your spending. Your phone bill is too high unless that includes paying off the cost of the phone itself. Research cheap domestic and international pre-paid packages. See if you can reduce your rent further – at least you travel for work and can escape regularly. Get rid of your car and minimise money sent home to your family – can anyone else step up there for a while? You must be clear to them what a difficult situation you are in, even with a regular salary.

See if you have any talents that can earn extra money on the side. Any kind of work, for friends, neighbours, former employees, online sites like Upwork, events etc. will help.

Finally, stay in communication with all your banks, talk to the management there, make it clear you want to resolve your situation and keep trying to find solutions with them. But be aware that the solution has to come mostly from you for now because of your debt burden.

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 [e-mail]