I am an accountant and have a loan of Dh140,000 and am struggling to pay an EMI of Dh6,200. I earn Dh7,000 a month, which does not include accommodation, and I asked the lender to reconstruct my loan but still the EMI is too high. I also have another loan from another bank and for which I owe Dh33,000. I have been in Dubai for 12 years and built up this debt after investing in farming in the Philippines. Due to various calamities, I wasn't able to recover the capital - it was a big loss. I tried applying to a debt settlement facility but I was rejected because the required salary is Dh10,000; a second bank rejected me because my company is not listed. I have now defaulted on one payment for the bigger loan; I have asked them to restructure but they are demanding another security cheque - which I have already given them. They claim they will discard my first cheque when they receive the second one.What should I do? EA, Dubai
Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com
The repayments towards both your loans are way too high, bringing your debt-to-income ratio to nearly 100 per cent. Given this high debt burden ratio (DBR) and the fact that you started at the new job less than three months back, debt consolidation is out of the question. The low salary bracket and working for a non-listed company don't help your case either. It's now time to take things into your own hands and figure out a way out of this.
First of all, you need to handle the security cheque situation with your lender. Tell the bank representative that in order to submit a new security cheque to facilitate the loan restructuring, you would need the old cheque back or at least documented proof that the original cheque has been cancelled. Explain your current financial situation and intentions to the bank since you're already in touch with them. If the potentially restructured loan can be accompanied with a short two-month payment break, it can help you figure how to get access to additional funds in the meantime.
If your second loan is a non-salary transfer variant, you are most likely paying a very high interest rate on it, so you must prioritise paying it off first. Look into opening another income stream to help ease the financial burden - can you take up some freelance work? Or maybe use your accounting experience to tutor school or university kids in your free time? Even as you look at options for generating extra income, make sure that you make some serious cutbacks in your monthly spending and set a strict budget so you're not wasting even a single dirham on unnecessary expenses.
Debt panellist 2: Alice Haine, personal finance editor at The National
If you are an accountant then you must already realise you are in way over your head. You have two loans and your monthly repayments are higher than your monthly income - if that doesn't send out huge warning signals then you can't be adding up your numbers properly. Because of your high DBR (you are sitting around the 100 per cent mark) a debt consolidation loan is out of the question, so it's time to take some drastic action to change the numbers on your balance sheet.
Firstly, if the bank - with whom you have the highest loan - is offering you a restructuring option, you need to take it. This will hopefully lower your repayments and leave you with some money for your daily expenses. If you are concerned about writing a second security cheque, raise this again with the bank and be firm. If necessary, take the second cheque into the branch and ask for the original to be returned while you are there or at least confirmation that the first cheque has been destroyed. You also need to trust the financial institution to do the right thing. They have trusted you by extending credit to you and you need to return that sentiment.
Once this debt is restructured, you then need to focus hard on paying off the lower loan amount. Dh33,000 is a less intimidating figure and throwing all your resources at paying this off will free up your income so that you can actually live your life without building up more debt. At the moment your entire salary goes towards debt repayments, which means you will only build up more liabilities as you go about your day-to-day life. After all, you still need to eat and sleep.
This is where you need to cash in any assets or savings you might have to eradicate this smaller debt. While this may leave you with nothing to fall back in the short-term, it means that with your restructured first loan, you can actually start rebuilding your finances. With the smaller debt gone, you can start afresh and create a budget for yourself - skills you already use in your working life.
Your budget should be carefully structured to include your debt repayments and daily living expenses but most importantly it must have a portion of your income allocated towards savings. This amount must leave your account the moment your monthly salary lands and go straight into a separate savings account. That way you won't be tempted to spend it. Do not touch this other account as these savings will become your emergency fund and your buffer against getting into trouble again. With one default already under your belt, you need to act now to stop yourself spiralling into a situation you cannot come back from.
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.
