I am a bank officer with a salary of Dh11,500. I am married and my wife earns Dh5,500 per month. We are in such a bad situation and have no solution in front of us. I have many personal loans and credit cards that amount to a total of nearly Dh300,000 for which I am making all the payments on time. Sometimes, I only pay the minimum payment for the cards because I don't have any excess amount to pay extra and settle the principal amount on the card. I have my car which I don't want to sell now. But if I do, then I will have some relaxation towards by debt burden. I also have an investment back in my home country which if I sell I can close all my liabilities. But again I don't want to do that because that's my only asset or investment which I have and I want to retain it for my future. How can I recover from this? MS, UAE
Debt panellist 1: Keren Bobker, The National's On Your Side columnist and an independent financial adviser with Holborn Assets
I am sure this feels like a tough situation but, as MS says himself, he does have some options as he has assets that could be sold. I note that he is managing to make the minimum payments each month so he could be in a worse position but unless he makes repayments of more than the minimum he will never reduce, let alone repay, the monies outstanding.
Based on a combined income of Dh17,000 the amount outstanding is pretty much the maximum that can be borrowed under UAE Central Bank rules and is high given their situation. I would have expected a bank employee to have a better understanding of the risk and consequences of borrowing money than the average man in the street.
There are a couple of options here and these should be considered carefully. He states that the debts are a combination of loans and credit cards and does not specify the proportion.
As MS has other assets he could consider selling one or more to repay at least part of the total outstanding. He should then be in a position to repay some of the capital of the remaining debts and thus reduce and eventually repay them. I understand that he is reluctant to use capital in this way but it may be the “least worst” option at this time. Planning for the future is good but not at the expense of potential serious problems now. Repaying the borrowing in full would reduce the monthly outgoings and should then allow MS to start saving for his future.
I hope the credit cards have been cut up and are no longer being used at all. The interest rates on the cards are likely to be higher than on a personal loan so it may be possible to take out a personal loan at a lower rate to repay the credit card debts and reduce the monthly payments. Any borrowing that is authorised will be on the proviso that the monies are paid directly to the credit card accounts and probably that the cards be cancelled. MS will need to do the calculations properly to ensure that this puts him in a better situation overall.
There are certainly options and it is important that MS takes action sooner rather than later to reduce the debts as right now he is in a financial rut and needs to break out to improve his situation over the long term.
Debt panellist 2: Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life
Paying off liabilities verses holding onto accumulated investments is a good question. You have to look at the cost of the liability verses the return on your investment. Most likely your credit card debt is costing you in excess of 15 per cent per annum. Is your investment making that? If it is costing you more in debt then repaying the debt first is a better solution.
I suggest you first see if you can consolidate your credit card liabilities onto one personal loan spread over five or eight years with a fixed monthly repayment. If this is possible then consider this first. Review your investment and see if you are able to release some money from it which you can then use to reduce the credit card debt. Selling the car to reduce some of the credit cards is a good option too. There are alternative short-term car options available like renting for a while or purchasing a cheaper car. Your aim should be to repay as much debt off as possible using your car and investment. You need to get your monthly commitment to your debts to an amount that is affordable and that you can consistently maintain, otherwise you run the risk of increasing your debt due to your regular monthly household commitments and living expenses.
Use the snowball effect - paying off one credit card at a time. Physiologically you will feel better by seeing the balance reduce and ticking a card off at a time. It will also create the momentum you need to continue to repay everything off.
Also address where you could have made a different decision so you can learn from this situation and avoid finding yourself in this situation again. Many people fall into the trap of repeating the debt cycle. This becomes a pattern in their life and so they always find themselves back in debt. Understand fully why you got into this situation so you can break the cycle of future debt.
The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank (ADIB); Ambareen Musa, the founder and chief executive of the comparison website Souqalmal.com; Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life; and Keren Bobker, The National's On Your Side columnist and an independent financial adviser with Holborn Assets in Dubai. Together they answer queries in a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to pf@thenational.ae.
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