There has been a lot of talk in recent months about debt consolidation. Many borrowers who find themselves drowning in debt, are eager to approach their bank or another financial institution to consolidate all their loans and credit cards into one payment. But many are under the illusion that this is the ultimate solution to all their debt woes.
Before you decide to go down the debt consolidation route, it is important to analyse whether it is the right financial decision for you or not. Here, the team from Souqalmal.com weighs in on the pros and cons and long-term implications of consolidating your debts:
How does debt consolidation work?
Debt consolidation products from banks offers overwhelmed borrowers some breathing space by rolling multiple debts into a single consolidated loan, usually at a lower rate, requiring one repayment every month.
Monthly repayments can become more manageable, due to the extended loan tenure offered under such an arrangement. You will also have the convenience of dealing with just one lender, and can keep better track of how much you owe and how much you need to repay.
Who can benefit?
If you currently have high-interest unsecured debt, especially on multiple credit cards, and no extra cash or savings to pay it off, you can opt for debt consolidation to combine the outstanding balances and lower the rate significantly.
If you’re financially disciplined and can commit yourself 100 per cent to the revised repayment plan and longer loan repayment tenure, this may be the right option for you. Bear in mind, you can only benefit from loan consolidation if you don’t run up any fresh debts, in which case you’ll simply be back to square one. Make sure you don’t overcommit, with a consolidated monthly repayment that you can’t sustain over the next few years.
Am I eligible and what fees will be applied?
To be eligible, you must retain a Debt Burden Ratio (DBR) of no more than 50 per cent. However, many banks in the country relax this upper limit for Emiratis. You will also be required to transfer your salary to the bank offering the debt consolidation facility. Fees and service charges involved are similar to regular personal loans, and usually include a processing fee of around 1 per cent of the loan amount.
Is consolidation always the answer?
This is not by any means an instant fix. Not only does it require long-term commitment but it could end up costing you more money in the long run.
If the consolidated loan only lowers your monthly repayments, but stretches the tenure further, you could end up shelling out more in interest payments. This could still be the case, even if you secure a lower rate on the consolidated loan.
Debt consolidation can alter the structure of your repayments and get you some relief from high interest rates, but it can definitely not make your debt go away. You are still obligated to pay back what you owe, though you may have more time to do so. Remember, a longer tenure also means a longer financial commitment.
What alternatives are there?
If you’re struggling with your repayments and need temporary relief, check if your bank allows you to take a payment holiday, which can help you postpone your loan instalments by two to three months. If you’re looking for a more long-term solution, speak to individual banks about restructuring your existing loan to help you avoid loan delinquency.
When dealing with an outstanding balance on multiple credit cards, also consider the balance transfer option by taking advantage of the zero per cent offers on various credit cards. But be sure to factor in the balance transfer fees. The interest-free tenure may range from three to six months. Try to repay as much as you can during this introductory period to avoid interest.
What if I’m rejected for a consolidation products.
If conventional loan consolidation is not an option for you, consider speaking to your primary bank about consolidating the loans and credit cards you have with them into a lower-rate loan.
If you have savings or investments that are yielding significantly lower returns compared to the rate you’re paying on your loans, you may want to liquidate these assets and use the funds to settle your debts sooner.
While debt consolidation can help with the symptoms, it cannot address the root of the problem. Be prepared to make necessary cutbacks, restrict your spending, close your credit cards and refrain from taking on any more debt.
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Business Insights
- As per the document, there are six filing options, including choosing to report on a realisation basis and transitional rules for pre-tax period gains or losses.
- SMEs with revenue below Dh3 million per annum can opt for transitional relief until 2026, treating them as having no taxable income.
- Larger entities have specific provisions for asset and liability movements, business restructuring, and handling foreign permanent establishments.
TEACHERS' PAY - WHAT YOU NEED TO KNOW
Pay varies significantly depending on the school, its rating and the curriculum. Here's a rough guide as of January 2021:
- top end schools tend to pay Dh16,000-17,000 a month - plus a monthly housing allowance of up to Dh6,000. These tend to be British curriculum schools rated 'outstanding' or 'very good', followed by American schools
- average salary across curriculums and skill levels is about Dh10,000, recruiters say
- it is becoming more common for schools to provide accommodation, sometimes in an apartment block with other teachers, rather than hand teachers a cash housing allowance
- some strong performing schools have cut back on salaries since the pandemic began, sometimes offering Dh16,000 including the housing allowance, which reflects the slump in rental costs, and sheer demand for jobs
- maths and science teachers are most in demand and some schools will pay up to Dh3,000 more than other teachers in recognition of their technical skills
- at the other end of the market, teachers in some Indian schools, where fees are lower and competition among applicants is intense, can be paid as low as Dh3,000 per month
- in Indian schools, it has also become common for teachers to share residential accommodation, living in a block with colleagues
THE SPECS
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Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
The biog
Alwyn Stephen says much of his success is a result of taking an educated chance on business decisions.
His advice to anyone starting out in business is to have no fear as life is about taking on challenges.
“If you have the ambition and dream of something, follow that dream, be positive, determined and set goals.
"Nothing and no-one can stop you from succeeding with the right work application, and a little bit of luck along the way.”
Mr Stephen sells his luxury fragrances at selected perfumeries around the UAE, including the House of Niche Boutique in Al Seef.
He relaxes by spending time with his family at home, and enjoying his wife’s India cooking.
The alternatives
• Founded in 2014, Telr is a payment aggregator and gateway with an office in Silicon Oasis. It’s e-commerce entry plan costs Dh349 monthly (plus VAT). QR codes direct customers to an online payment page and merchants can generate payments through messaging apps.
• Business Bay’s Pallapay claims 40,000-plus active merchants who can invoice customers and receive payment by card. Fees range from 1.99 per cent plus Dh1 per transaction depending on payment method and location, such as online or via UAE mobile.
• Tap started in May 2013 in Kuwait, allowing Middle East businesses to bill, accept, receive and make payments online “easier, faster and smoother” via goSell and goCollect. It supports more than 10,000 merchants. Monthly fees range from US$65-100, plus card charges of 2.75-3.75 per cent and Dh1.2 per sale.
• 2checkout’s “all-in-one payment gateway and merchant account” accepts payments in 200-plus markets for 2.4-3.9 per cent, plus a Dh1.2-Dh1.8 currency conversion charge. The US provider processes online shop and mobile transactions and has 17,000-plus active digital commerce users.
• PayPal is probably the best-known online goods payment method - usually used for eBay purchases - but can be used to receive funds, providing everyone’s signed up. Costs from 2.9 per cent plus Dh1.2 per transaction.
Ain Issa camp:
- Established in 2016
- Houses 13,309 people, 2,092 families, 62 per cent children
- Of the adult population, 49 per cent men, 51 per cent women (not including foreigners annexe)
- Most from Deir Ezzor and Raqqa
- 950 foreigners linked to ISIS and their families
- NGO Blumont runs camp management for the UN
- One of the nine official (UN recognised) camps in the region
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Company profile
Name: Oulo.com
Founder: Kamal Nazha
Based: Dubai
Founded: 2020
Number of employees: 5
Sector: Technology
Funding: $450,000
Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
