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I need help on how to clear the credit card debts my husband has accumulated that now amount to Dh103,200. My husband is an avid investor back in India and has signed up for several credit cards in the UAE to secure easy cash loans. He then invested that money into an empty land plot and two flats in India that have no returns at all. Altogether, he has nine cards on a monthly salary of Dh12,000 for his job as a network engineer, with all the money going towards the cards. Because he has multiple cards with different due dates and minimum balance amounts, he often gets confused and ends up paying less than the minimum required amount. Sometimes it is only Dh20 less. This results in the banks charging more each time and turning it into a never-ending debt situation. The card debts (which my husband only gave me recently after me asking for a year) are:
Card 1: Dh8,400
Card 2: Dh6,000
Card 3: Dh20,500
Card 4: Dh9,800
Card 5: Dh15,000
Card 6: Dh11,500
Card 7: Dh9,000
Card 8: Dh8,500
Card 9: Dh14,500
Total: Dh103,200
We tried contacting some of the banks to get a personal loan to clear all the cards. Our aim is to pay off the loan within one year but the banks say that either the company he works for is backlisted or they want a salary certificate/ salary transfer - something his company is not providing. I also work, earning Dh14,000 as a buyer but my salary is taken up by the house rent, the telcoms and utility bills, my son's school/transport and day care and groceries. One bank did agree to provide a personal loan but with an interest rate of 21.99 per cent, which is very high. What is our best solution going forward? KC, Dubai
Debt panellist 1: Kunal Malani, head of customer value management at HSBC
Cashing out from a Credit Card is really not advisable. Cashing out on 9 of them is asking for trouble.
That said, I do believe that you are on the right track in terms of managing the issue.
Firstly, make sure you are keeping track of the due dates for minimum payments and ensure that you don't miss any. It is important to not be delinquent, even for small amounts, as this will keep piling on charges, and also affect your credit score with the Al Etihad Credit Bureau (AECB), which may significantly impact your chances of getting a loan. You can check your statements for the minimum payments and due dates or call the respective banks.
Secondly, try to prioritise paying off cash balances first, as on most cards, interest rates on cash withdrawals are higher than on purchases and balance transfers. You can do this via a combination of the following three options:
a. Some banks have an exceptional process in place to pay-off cash balances and some also offer cash instalment plans which are at lower interest rates compared to normal cash withdrawals on credit cards. You can call your bank and get this information.
b. Transfer remaining cash balances onto cards where you are not “maxed out” yet, if your bank is able to isolate your outstanding cash balances. Sometimes, asking a bank for a limit increase on your existing card is easier than asking for a new loan. Use this new limit to transfer the cash balances if possible. With most banks balance transfers typically are at 0 per cent interest for a few months with a processing fee. Make sure you understand fully the cost that may apply with the balance transfer option, if you choose to use it. However, please be mindful that every bank has its own selection criteria for offering balance transfers to customers or segregating cash balances from total amounts outstanding.
c. As you mentioned, you can also try to take a personal loan. It is also worth noting that you can continue to try to get a salary certificate from your employer to enable you to engage with banks that may be open to granting you a personal loan. If that fails, you should then consider the offer you said was made to you by a bank for a personal loan at 21.99 per cent, which is a better option than maintaining cash balances on your credit cards.
d. I think you need to consider selling some of the investments made in India and use the money to pay off your credit card debt. Looking at your financial commitments for rent, groceries, day care and school fees – even if you do everything I have mentioned above, you will still need more funds to help settle your outstanding payments.
Finally, once you have managed some of the overdue payments down, you can discuss with your bank to restructure, or consolidate the credit card bills, into an affordable monthly payment plan.
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The Debt Panel: Filipino has made all the cutbacks he can and still cannot repay his Dh185,000 debts
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Debt panellist 2: Michael Routledge, the founder of the debt advice site savememoney.ae
The situation you find yourself in is a difficult one that can get resolved relatively quickly. I assume that having nine different credit cards means your husband is constantly receiving phone calls from lenders chasing him for payments. Having been in this situation myself, your husband has already taken a massive step by sharing this information with you, and it’s great to hear that you’re supporting him to get the debt cleared. Being in debt was without doubt the most difficult, and most lonely period of my life, so I love that you’re supporting him.
As your husband’s salary is Dh12,000 per month, and the average credit card value across all nine cards is Dh11,445, it is realistic that you could pay off one card a month in full. The ‘correct’ way to service the debt is to pay each lender the proportion of your salary relevant to the amount of debt you have with them, versus your total amount of debt. But in cases such as this, you would be better served paying those who shout the loudest first. I’d also suggest looking to see which cards have the highest rate of interest and clearing those first, which will reduce the amount of additional interest you might pay between now and the day you clear all of them.
One task you and your husband should do together is to cut up each card as you close out the debt (it’s an immensely satisfying thing to do once you’ve paid them off). Then get down to the bank and close the account all together, making sure you receive a clearance letter from the bank to confirm that account (card) is closed. Take the cut-up card with you and hand it back to the bank.
As you may have read in The National this week, I am closing Savememoney.ae site to spend more time concentrating on my family, as well as my personal career, however I'd love to know how you get on with clearing this debt. Please reach out to me if you require any further help (free of charge) at contact@savememoney.ae.
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Debt panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com
A reckless attitude towards investing can do you more harm than good and, unfortunately, making this financial mistake has now landed your husband in a pool of debt.
Since your husband's employer isn't listed with the banks, and he already owes over Dh100,000, a personal loan would be difficult to secure. Debt consolidation isn't a feasible option either due to stricter eligibility requirements across most banks. How about approaching individual credit card providers to restructure the outstanding credit card balance into a fixed-interest fixed-tenure loan? You could negotiate such a payment plan for the credit cards with the highest outstanding balance.
You also mentioned that the properties purchased by your husband are not yielding any returns. Even if the value of the properties is stagnant or has dipped, staying invested in a non-performing asset would only mean that you're missing out on potential returns elsewhere, on top of taking on expensive debt to invest in them in the first place. You could sell these properties and use the money to repay your debts here.
Alternatively, consider applying for a loan in your name. First check with the banks to see if your company is on the approved list of employers. If it is, you would have easier access to a personal loan and that too at a considerably lower rate compared to what your husband would have been offered. A salary transfer option would ensure you get the lowest interest rate possible, so shop around before you commit. Moreover, even a non-salary transfer personal loan would prove to be much easier on your pocket if you compare the cost to the heavy interest payments you're making towards the outstanding credit card debt. While you use this loan to pay off and close the credit cards, your husband's salary can be used to meet your family's living expenses.
As you figure out which of these solutions works best for you, it is important to never miss the minimum payments on credit cards. Set reminders in your phone or check with the card providers every month if you have to. Missed minimum payments lead to banks levying heavy late payment fees and penalties on you, making your overall debt situation only worse.
Going forward be very careful about how you use credit cards - never use them as a source of easy cash. Doing so is a proven recipe for debt disaster.
On this panel this week: Kunal Malani, head of customer value management, UAE and Mena at HSBC Middle East; Ambareen Musa, founder and chief executive of financial comparison site Souqalmal.com and Michael Routledge, the founder of the debt advice site savememoney.ae.
The Debt Panel is a weekly online column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae.