Nearly six in 10 parents in the UAE prefer to use credit cards for tuition payments but the ease of swiping can lead to a mountain of debt, warns an expert.
Parents risk incurring high interest on top of their debt if they cannot repay the credit card bill at the end of the month.
“With most credit cards charging around three per cent per month in interest, plus having an annual fee, you could be looking at paying back in excess of 36 per cent more than the original school fees,” said Gemma Frankland, director of client services at Global Eye, a wealth management firm in Dubai.
It’s important to stay on top of one's spending and ideally pay credit card bills on time and in full each month, she suggests.
“For some families using credit cards for paying school fees is the only option but it is imperative that you make sure you can pay it back within a reasonable timeframe," she said.
“If that timeframe (including interest and fee) is over 12 months then don’t do it, or else you will still pay for this year's school fee when the next year’s is due, which is a very dangerous spiral," she said.
Plastic is increasingly becoming popular among parents in the UAE as a mode of payment and majority of schools offer this option. Besides being convenient, payments made through credit cards can earn cashback, air miles and easy interest free payment plans offered by banks.
Nearly six in 10 parents choose credit cards to pay hefty tuition fee, according to Taaleem, an education provider in the UAE with 13 schools and over 12,000 pupils under its umbrella.
“Around 58 per cent of parents in our schools pay fee with credit cards as they get benefits like cashback,” said Galvin Walford-Wright, chief people, marketing and admissions officer at Taaleem.
“The trend of paying school fee with credit cards is common in the UAE as organisations are moving away from handling cash. The process is inconvenient to parents, who have to take out large amounts of cash, queue up and make a manual transaction. Paying through a credit card is easier," he said.
Many parents can also avail discounts by paying through credit cards as individual banks offer a host of deals.
Gems Education, the country’s largest education provider and First Abu Dhabi bank offers Gems Fab titanium credit card that can be used exclusively at Gems schools. The card offers up to 4.25 per cent fixed discount on advanced payment of fees with the option to break it up in 12-months payment plan and other frills like education protection cover, money transfer facility and free movie tickets to make it lucrative for parents.
“Parents can pay school fees in a number of ways depending on what is convenient to them, either directly at the school, through bank transfer or by using a credit card,” said Victoria Lumby, vice president of enrollment at Gems Education.
Kamal Kalwani, chief executive officer of Ambassador Education in the UAE, said half of the parents at the group's schools in Dubai and around one in five parents at their school in Sharjah pay fee through credit cards as it is convenient and reduces the liability of cheques bouncing.
For the school, payment through credit card reduces the risk of handling cash and cheques and the school receives the money on the same day, he explained
But Ms Frankland warns against falling for any bait. She recommends schools provide a variety of payment options, such as a direct payment plan between the parents and the school, or offer parents leaflets or links with advice on managing their finances. She also urges parents to scout out competitive interest rates and avoid late payments.
Banks in the UAE can take legal action against those who fail to keep up with their payments. When one defaults on a debt, the bank may cash the security cheque initially provided by the debtor to recover the outstanding dues. In the event this cheque bounces, the bank has the right to file a criminal and a civil case for collection of due against the debtor.
In general, the UAE Civil Law limits the debt recovery period to 15 years unless a specific provision indicates otherwise. If this is the case, the bank has 15 years to chase unrecovered debts.