The Debt Panel: 'I will never clear my credit card unless the bank allows me to turn it into a loan'

The Sharjah resident has been repaying the debt for over a year but is barely making a dent in the outstanding balance

Illustration by Alex Belman

I am from Nigeria and have an issue with a bank over my credit card, which I first took out in August 2016. I accumulated a debt of Dh11,000 after losing my job with my previous employer in November 2016, reaching the Dh11,000 peak in February last year, though with interest the amount due went up to Dh12,340. The money was mostly spent on flight tickets, transportation and groceries until I secured a new role in September. But despite paying over Dh15,000 onto the card, the outstanding is still over Dh7,000. My monthly payments range from Dh2 to Dh5,800 depending on how much I have at hand. I earn Dh8,000 in my new role in the aviation industry and my previous salary was Dh13,118. I have asked the bank to cancel the card and allow me to repay the debt in instalments otherwise it will take a long time to emerge from this debt. I also have a debt with another bank, but I have negotiated a settlement; I owed Dh40,000 but paid Dh10,000 of that in January and am repaying the rest in Dh3,000 monthly instalments over 10 months. Now I need to resolve this credit card debt. Despite several appeals, the bank will not allow me to pay it off in a specific time period. What do you suggest? EM, Sharjah

Debt Panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

You appear to have an unusual issue with this particular bank and are suffering despite your best efforts to come to a fair solution.

Currently you aren’t making enough headway towards clearing your card debt despite making regular and sometimes substantial repayments. You must be suffering very high charges if you still owe Dh7,000 after already paying more than twice that amount, and much higher than you owed in the first place. It would be best to take out a loan from another trusted bank to completely pay off and close this card before you are penalised further. This would only need to be a small amount and with a tenure of 24 months would result in low and affordable monthly repayments.

Overall, you have certainly adopted the correct approach to find a path out of debt, such as speaking to the other bank with which you held debt to find a fair solution through a sustainable repayment plan. Be careful when using any form of credit for everyday purchases like groceries and always attempt to pay it all off at the end of the month to avoid unnecessary fees and charges.

Once you have managed to close your card, I would encourage you to continue to live within your means and create a savings plan for the future.

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Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets

You say your payments onto the card have varied between Dh2 and Dh5,800 per month. In the months that you paid less than the minimum, you would have been in breach of the contract terms and therefore likely to be charged an additional penalty, which would have added to the amount owing. This will be in the terms and conditions that you signed upon application. When only the minimum payment is made, this only covers the interest, and depending on the interest rate on the  card, it is even possible that not all of that is covered. These, I suspect, are the reasons you still owe the sum in question despite the payments made. Therefore the best advice is always to repay cards in full each month.

No bank is obliged to reschedule a debt, no matter how much sense it may appear to make to you, and in the grand scale of things the amount currently outstanding is not substantial, at least as far as the bank is concerned.

I suspect the bank does not want to consolidate what they view as a small debt as there are costs involved for them doing so. Personal loans tend to be cheaper for borrowers so I can see why you would prefer this route but the bank cannot be forced to do this.

A common reason, is that someone has exceeded the Debt Burden Ratio of 50 per cent of outgoings, but if your only other debt has monthly repayments of Dh3,000 and your salary is Dh8,000, you still have some leeway.

Approach the bank again, but if they do agree to convert the debt to a loan watch out for any fees that would negate savings. If not, your option is really just to pay as much as you can over a few months in order to repay the card in full. You must pay significantly more than the minimum monthly amount to actually start reducing the capita;  if you pay Dh1,000 per month, for example, the card should be repaid in full by the end of this year.

This means that you would be debt-free by the end of 2018, so that you can then build up a cash fund to avoid potential future cashflow problems.

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Debt Panellist 3: Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life

What's really important here, crucial even, is to look at the solution as a whole. To address a repayment strategy for one debt without looking at the affordability of the other repayment could see your liabilities increase rather than decrease. Even if the bank provides you with a settlement option, but at the cost of an unaffordable monthly repayment, it will not solve your problem. You have to know what monthly repayment you can actually afford to pay, otherwise how will you make the repayments every month?

Make another attempt to reach out to your bank. Address it in writing and to the highest level you can. Explain your situation fully including every attempt to appeal and their response. Mention who you spoke to and which department. Share your income and expenses and what you can afford to repay as a monthly instalment. Request an interest freeze too and see what options they can offer you. At the same time make a request at the bank you have the other loan with. As they already have credit with them, they may consolidate your other bank debt too.

Simultaneously, you must ensure your living expenses fall with your means. Now that your monthly income is lower than your previous salary, you must revise your expenses and re-adjust to the new income. Also find a way to build an emergency fund for unexpected costs. This is usually the reason people get into debt. Redundancies are one of those unexpected life costs that we must all have a back up plan for.

The next option is to simply keep making instalments to the credit card every month. Overpay as much as you can. Use your bonuses and incentives; brainstorm other ways of making more money. For example, do you have any assets you can sell to clear your debt - property, land, jewellery? What about a spring clean? We usually accumulate things we can sell on the secondhand market. When one avenue doesn't work, look for another.

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]