I am currently a senior lecturer at an Abu Dhabi college, where I have worked for the last 10 years. I have been on the same salary since 2009. I’ve tried to find an alternative, but with no luck. I bought a house in Lebanon, and for this I took a personal loan here and completed the amount with a long-term loan from Lebanon. The problem started three years ago when I had to register the house. I had to pay a big amount since it’s mortgaged to the bank; I also had to complete my degree if I wanted to keep my job. I found myself unable to provide for all these expenses, and I turned to the worst alternative … credit cards.
For the past two-and-a-half years I have simply worked to pay off my debts, which have grown as I am only able to make the minimum payments on the credit cards. I pay Dh11,850 for my loan, and Dh12,250 for the credit cards. My total salary is Dh26,000, so I am basically left with Dh1,900 a month. I have to pay the rent, the bus fees, send money to my parents on a monthly basis and pay off the bills. With the amount I have left, this is practically impossible. I was never a fan of credit cards, but unfortunately, I had to used them just to get by.
I am now in a desperate situation where I cannot take anymore loans to pay off the credit cards, nor have I any other resource to help me get out of this quick sand. I even tried to sell the house I bought in Lebanon, but with no luck so far. They offered an insignificant amount that barely covers the house mortgage, and basically it would do me no good. I consulted a couple of financial advisers and they all said what I already know. I have to get rid of the credit cards, since the loan will eventually finish in 26 months. I am so depressed and stressed out from phone calls and the idea of being helpless is driving me mad. In total I owe Dh215,000. I need a loan that I can repay over 26 months and am willing to offer any sort of guarantee. Where can I get this kind of help. I have tried everything, everything. I have no one to rely on, My family in Lebanon are totally dependent of me, and so is my wife's. HS, Abu Dhabi
Debt panellist 1: Keren Bobker, an independent financial adviser with Holborn Assets
It is clear that HS has totally over-extended on credit and I am disappointed to see that the banks have extended this much credit to someone who clearly cannot repay it. His loan and credit card repayments exceed 93 per cent of his monthly income so no bank is permitted to lend him any more money, even with the intention of repaying debts. UAE Central Bank has set a Debt Burden Ratio and this means that no one should have debts where the repayments exceed 50 per cent of their income. Anything above this is a potential issue.
As HS has just been paying the minimums on his credit cards, as he can afford no more, he is not paying them down and this debt will never reduce. I would also be disappointed to hear that a bank has increased a credit limit on a card where someone never pays more than the minimum as that should be a warning sign to them that there might be a problem.
The situation as it stands is untenable and something has to change. Unless HS can increase his income, as it is unusual to have had a single increase in eight years, or can reduce his outgoings in some way, things will never improve. I assume he has no assets other than the house that can be sold, nor any family members that can assist. Is there no one else that can assist with supporting two families in Lebanon? Is his wife able to work and bring in a second income?
While it is a big step I suggest that the only way out would be to sell the property in Lebanon. I note that he says this would only cover the mortgage but that means that a debt is repaid and there are no further monthly repayment on the mortgage. This should give him a little more leeway in terms of monthly payments and he may then be able to make some in roads in the debt.
When debts are at this level then drastic measures have to be taken and borrowing more money is absolutely not the answer. He mentions offering a guarantee but without an asset back this it is meaningless and would only increase the problems. He does not say if he has approached his bank(s) but at this debt level there may be little that they can, or will, do anyway.
If outgoings are reduced, and ideally household income increased, HS may then be able to start paying a little extra to the credit cards each month, thus slowly reducing the amount owed. I’d suggest that he start with the one with the highest rate of interest and once that is repaid move the next one and so on. There is no quick fix to a problem like this but a few changes as suggested can make a difference.
Debt panellist 2: Philip King, head of retail banking in the UAE at Abu Dhabi Islamic Bank
HS needs to refinance his debts using a personal loan, but to get out of this debt cycle he would need to extend the repayment schedule beyond 26 months to make repayments manageable. As it seems he will have his loan paid off by the end of its term by keeping up with monthly payments, we can focus on the credit cards.
It is unclear why it is not possible for him to get a personal loan to pay of his remaining credit card debt, as he stated. At current rates in the UAE, if his employer is approved by the bank which gave the original loan, and he has not been delinquent on any payments, the bank should be willing to give a personal loan that could be as high as 20 times his salary, so up to Dh520,000. In fact even a loan of Dh250,000 would be sufficient; paid over a 48 month time frame, this would reduce monthly payments to Dh6,100 per month, and would allow him more flexibility in his monthly allowance.
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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