I live in Abu Dhabi and am struggling to stay on top of my credit card debts. I asked some banks to grant me a buyout loan but none of them is willing to help me. I earn Dh7,300 a month as a document controller and with that comes free accommodation, food and transport. In total I owe:
• Personal loan 1: Dh153,000 (with a monthly EMI of Dh3,652)
• Personal loan 2: Dh19,000 (EMI Dh1,609) – this was converted from a credit card debt
• Credit card 1: Dh15,000
• Credit card 2: Dh17,000
• Credit card 3: Dh3,000
I took the personal loan a few years ago to help repair my parents' home in the Philippines and to allocate funds for my sister's college expenses, which she has now finished. At first, I was able to meet all my payments with a little amount to send back home. But then I had to send more and I sacrificed the payments on some cards until it got out of control. I have now missed two months payment on my three cards and I'm afraid I will miss next month's payment too if I not do anything to help myself. I also owe my friends Dh8,000 and they want to be paid this month. The collectors are calling me non stop asking me about the payment, and I'm about to lose myself at any moment because of the stress. Please help, I just need to regularise my cards and I will be OK. I tried to avail of a personal loan holiday payment for two consecutive months but I was rejected because my account is negative as I took a salary advance of Dh3,900. My last resort is a buyout loan for all my liabilities. Can you give me advice on how I can get this? FP, Abu Dhabi
Debt panellist 1: Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life
First things first, STOP. Take a deep breath and ask yourself what’s the very next thing I need to do. Chasing another loan is not the ultimate solution. Your loan repayments alone are already 72 per cent of your monthly income, leaving you with Dh2,039 to repay credit cards plus your personal expenses. No wonder you are spiralling out of control. You have far exceeded a comfortable debt ratio. Based on your current salary and current commitments your debt will only increase. A loan will simply tidy up what’s already been spent, not prevent future debt.
Approach a UAE debt consolidation agency to try to consolidate all debt into one with a monthly repayment that you can afford while still being able to live and save. Without this you will simply keep increasing your debt. Make sure you know your numbers. Have a clear ‘Statement of Accounts’. Be able to present your case clearly in a confident way to ensure repayment.
If you have assets here or in your home country, consider selling them to reduce the amount of money you owe. Think of ways of earning more income. Can you ask for a pay rise? Can you add more value to your company to justify a raise? Can you get commission on sales you make? Are there alternative avenues you can earn more money? Start to brainstorm ideas with a clear head. The answer is to earn more income.
Taking a loan to ‘tidy up’ your debt, is only the first step. You must make your expenses less than your income or this will be a never-ending cycle.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
With a combined debt of Dh207,000, which definitely brings your debt-to-income ratio over the minimum 50 per cent allowed by the UAE Central Bank, a buyout loan or debt consolidation doesn’t seem like a possibility. Your best bet would be to negotiate a restructured repayment plan with your primary bank (the one you transfer your salary to, and most likely have the personal loan of Dh153,000 with). This could translate into an extension in loan tenure or reduction in interest rate, thus making repayments more manageable for you.
By now you would have also realised that you cannot afford to support your family at the moment, not without drowning deeper into debt. Since you mention that your sister has finished her college education, has she now taken up a job? If so, she can contribute towards paying off part of the debt you’ve accumulated, or help provide for your family back home, until you sort out your finances here.
You have to start prioritising your debt repayments, making it your primary mission to get rid of what you owe. Start analysing where you can make cutbacks in your monthly spending. You also mentioned that you get free accommodation. Is it possible to get a housing allowance instead, so you can move into a cheaper accommodation and save on rent? If you have been working for your current employer for a while, this would also be a good time to discuss a salary increment. It’s definitely a discussion worth having at this point.
Whatever you’re able to save now, should first go towards paying off your credit cards one by one. They are your most expensive debts, and the biggest drain on your finances. It is also important to continue making at least the minimum payment on all other credit cards, to avoid late payment penalties. Once one credit card balance is paid in full, make sure you close the card account too.
The Debt Panel brings together four financial experts: Philip King, the head of retail banking in the UAE at Abu Dhabi Islamic Bank; 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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