Q I have credit cards with First Gulf Bank, National Bank of Abu Dhabi and RAKBank and would like to close at least two of them. I have tried to get a personal loan from other banks to settle the cards but the banks can’t offer a loan to me because either my company is not listed, my salary doesn’t meet the requirement or my length of service in the present company is not long enough. What can I do? WS UAE
The expert advice
Preeti Bhambri, managing director of Money Camel.
Acknowledging the problem is the first step towards resolving it. So congratulations on taking the first step.
Your approach in trying to convert multiple credit cards into a personal loan is absolutely correct. This can bring your interest rate cost down from 36 per cent per annum to anywhere between 9 and 17 per cent.
Considering the information given by you we can suggest two options. You can consider, a facility available by Abu Dhabi Islamic Bank (Adib) called Al Khair Liabilities Settlement that is designed to consolidate the outstanding balances of an individual’s existing conventional credit cards and personal loans.
This facility is not an additional liability since Adib settles the outstanding balance directly with credit card companies or banks.
Other banks also lend to individuals working with companies that are not listed with them. The eligibility in this case depends upon salary, current obligations and a person’s Debt Burden Ratio (DBR).
The other option that can save you the cost of interest is a balance transfer.
This facility allows you to transfer the outstanding balance on your existing credit cards to another credit card and pay the balance over six to 12 months at a very low (or sometimes zero) rate of interest. The new bank will usually charge either a flat upfront fee or a low monthly rate of interest for this transfer.
Depending on the available credit limit, you could transfer your outstanding balance to either your First Gulf Bank credit card or RAKBank credit card. Both these banks offer balance transfers at almost half the interest rate than usual.
You may also consider shifting the card balances to a new credit card that offers a balance transfer rate of 0 per cent.
For instance, Union National Bank is offering a 0 per cent interest rate on balance transfers with the UNB Titanium Credit Card. Remember to close the cards from where you transfer the outstanding amount to avoid being charged any other fees.
The reader’s advice
Pam Jones, Dubai.
My first tip is to try not to run up debt on a credit card at all.
Credit cards are the worst form of borrowing as you are paying the highest possible rate on that debt.
Instead you should use your credit card as a temporary loan facility, allowing you to pay for things ahead of your salary coming in.
Personally, I think the best method is to get a card that offers rewards such as airmiles, use the card to pay for everyday expenses such as groceries, education and car expenses then pay it off at the end of each month.
That way you earn the rewards without paying any hefty interest rates.
However, this is solid advice for your future credit card use, not your current situation.
For now, I would advise consolidating all your debt into a single loan.
While there are specific consolidation loans available, you can also take out a general loan – if your circumstances permit – so shop around for the best rates.
Then to keep the loan as cheap as possible, try to pay it off in the shortest time possible.
Your final step will be to monitor your spending. There is no point taking out a loan to cover your previous credit card debt then running up more debt on more credit cards.
Setting yourself a budget you can stick to and reining in your spending should ensure you do not end up in a similar situation again.
Next month’s Money Clinic:
I want to take out a loan and have seen good rates in conventional and Islamic banks.
I am a non-Muslim so I am wondering if it makes any difference which bank I choose to take a loan from.
Also what fees am I likely to pay depending on which type of bank I decide to borrow from?
– NA Dubai
Every month The National features a reader’s personal finance problem. If you have an issue or would like to suggest a solution for another’s reader’s concern, write to pf@thenational.ae
