The Debt Panel: ‘How can I stop my debts from spiralling out of control after my salary was cut?’

During the worst of the Covid-19 restrictions earlier this year, my company placed me on unpaid leave for three months. I have since returned to work but my salary has been reduced by 30 per cent.

I know I am one of the lucky ones because I still have a job. But I am finding it very difficult to pay for my daily living expenses and keep up with the monthly instalments on my personal loan and two credit cards.

My finances took a big hit when I was on unpaid leave and I used a lot of my savings to survive financially during this time. My total debts amount to just over Dh65,000 – I have Dh40,000 left to pay on the loan and owe Dh15,000 on one credit card and Dh10,500 on the other one.

I don't have any assets to sell to pay off my debts and have also used up most of my savings. I haven't missed any repayments yet but am worried that if I do, then the interest will start accruing and my debt will spiral out of my control. Is there anything I can do to minimise my monthly payments or reduce the interest? Or would you recommend that I apply for personal insolvency? GB, Abu Dhabi

Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

The global pandemic has resulted in a great amount of financial pressure for many individuals. You’re in an understandably stressful position, however, there are viable solutions that you can explore to get through this challenging period. It is also great to see that you have remained consistent and responsible with your payments.

The Central Bank of the UAE has recently extended the Targeted Economic Support Scheme (Tess) to the end of June 2021 to ensure that individuals and businesses are financially supported as they recover from the economic impacts of Covid-19.

Firstly, we recommend that you discuss your situation with the bank. This reassures your bank that you are taking your financial responsibilities seriously and that you are committed to not missing any payments.

Under the Tess programme, you can request a payment deferral or payment holiday with the bank. To support your appeal, it would be helpful to provide documentation from your employer stating that you were placed on unpaid leave and faced a salary reduction due to circumstances related to Covid-19.

This may give you temporary relief from financial stress. However, for the long term, you can discuss with your bank the option of consolidating your current loan and two cards into a new facility with a longer tenure and lower financing rates. It is in the bank's interest to resolve your issue promptly and mitigate any risks of default, so they are highly likely to cooperate with you on new repayment terms.

During this challenging time, we highly recommend that you decrease your spending as much as possible through tight budgeting or even contacting family for financial assistance. It might also be helpful to find other job opportunities that will give you a higher salary, allowing you to be in a better financial position.

Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

Filing for insolvency is considered the last resort for anyone struggling to meet their debt commitments. Insolvency proceedings under the UAE's Personal Insolvency Law allow you to request for a civil court-mediated settlement of your outstanding debts when you are not in a financial position to afford repayments.

Such a settlement would cover all your loans and credit card debt under one umbrella. However, when a settlement cannot be reached, a formal bankruptcy declaration is the next option and your assets such as property, savings and investments will have to be liquidated to pay off the lender.

The decision to file for bankruptcy shouldn't be taken lightly, as it also impacts your credit score and credit-worthiness in the long term.

In your case, you haven't missed any debt payments yet and are still able to repay your monthly debt commitments, even with the reduced salary. If you're worried about income-related uncertainties, you should start looking at ways to limit your exposure to debt and boost your savings.

Begin with cutting down all unnecessary expenses and use any budget surplus you're left with to get rid of your credit card debts one by one. You can also check with your primary bank if they can restructure your loan to reduce your instalment amount, or consolidate the loan with your credit card debts to offer you one monthly payment option that's more affordable

Once you're able to lock in a decent amount of fixed savings every month, start rebuilding your emergency savings fund. This fund should ultimately have at least six months' worth of your living expenses. So if you're ever faced with an unexpected financial emergency, you will have these savings to fall back on instead of relying on expensive debt.

Debt panellist 3: Stuart Ritchie, director of wealth advice at AES

Given that you have managed to make repayments so far throughout this difficult period, you may be able to continue to do so rather than requesting that your bank pause these completely.

However, if you feel the amount is too much for your current situation, you should have a conversation with your bank about reducing the monthly repayment in line with your salary reduction until this returns to pre-Covid-19 levels.

The majority of banks in the UAE have put payment holiday and reduction schemes in place to support customers as part of the Tess scheme.

However, any reduction in repayments may increase the amount of debt you owe overall, so should be used sparingly. The relief options may also have differing terms and conditions for loans and credit cards.

In the meantime, look to supplement your income through other means like overtime. Discuss with your employer options for additional earnings, or how long you can expect the salary reduction to last.

Your situation is one that you have been managing very well so far in the tough circumstances, so do not be too disheartened. Persist with paying down your debts and avoid taking on any other dues where possible until these are repaid.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae