Our experts advise a Dubai resident, who missed payments to help a sick relative, how to prioritise his finances
The Debt Panel: Admin worker begs debt collectors for more time to repay Dh51,000 in loans
I took out a loan in May last year to send money home to help my family in the Philippines with tuition fees as well as their general expenses. I have two children, one in college and one in high school and I am the family breadwinner. About three months ago a relative got sick and they kept asking me for more money. My salary was also delayed by a few weeks and hence I was billed with hefty late payment charges.
My debts are:
Credit card: Dh12,000
I constantly receive calls from collection agents and I answer them. I also face the collectors whenever they come to the office. I try to reassure them that I will pay, and ask them to give me more time as I am facing some difficulties. Because of the salary delays, I end up borrowing from friends so that I can get to work and pay rent. I also find prices have increased in general here. These collectors don’t want to listen and only want to force a date as to when I can repay the debts. They take it to the point that they will use words to shame you. I am not qualified to take a debt consolidation loan as my salary is only Dh5,000 a month as an administration clerk. But I know myself that I can regularise my finances again – I just need more time, like a month.
My monthly expenses are:
Food and others: Dh700.
I asked the bank to change my billing date but was told this was not possible. I also visited the bank to pay my overdue and was told to speak to the collector. How can I solve this as the collectors are harassing the life out of me? MN, Dubai
Debt Panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
While a debt collection agent’s role is to recoup the money you owe the bank, there should be a limit to the extent they harass you, particularly when you have restated your commitment to repay what you owe. You have done the right thing in visiting the bank directly to explain your situation, and it is disappointing that they haven’t taken your circumstances into consideration. However, you should put pressure on your employer to transfer your salary as soon as possible as this is the root of your issues.
You should also make an effort to redirect the Dh1,500 you remit every month, while budgeting closely on non-essential spending, so that you can start to pay off your borrowings, starting with the Dh12,000 card loan, which will be charging the highest rate. You are likely to have built up significant fees and charges for missing repayments, so you need to factor this into your budgeting.
Debt Panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
Once the banks turn over the debt to a collection agency, it can prove very difficult to negotiate with them. As your case illustrates, one is simply redirected to the debt collector. You must figure out how to deal with the collectors tactfully. First, calculate how much you can afford to pay, then make a realistic repayment proposal (either lump sum or monthly) to convince the collectors this is the best you can manage given your financial circumstances. Finally, keep a record of all correspondence and obtain any agreement with the collector in writing.
Assuming both your loan and credit card are with the same bank, and now with the same collection agency, you must also negotiate with the collectors to waive the late payment penalties and some of the interest, to make repayment manageable for you.
Now, coming to the point about how you will manage to actually repay the debt – start by reviewing your income and expense. Given your current expenses, you manage to spare about Dh1,000 every month for your debt repayments. This won’t be enough to save up for a lump-sum payment towards either of your debts. So, what else can you cut back on?
You offered to help when a relative required financial assistance, so maybe some of your close relatives could rally around you now. Approach your extended family back in the Philippines and see if they can help you out by bearing your kids’ college and school tuition fees until you get back on your feet financially. Pulling back on the remittances in the meanwhile could help free up enough cash for you to at least repay your credit card debt.
On the income side of things, now would also be a good time to ask your employer for a raise or possibly a short-term interest-free loan. If you’ve been working with your current employer for a while now, you can ask for two to three months’ salary in advance to help you partially repay the debt. You could also consider taking on another part-time job or look for freelance work assignments to help you bring home some extra cash. The additional income could make a huge difference in helping you repay your outstanding debts faster.
Debt panellist 3: Rasheda Khatun Khan, founder of Design Your Life
There are three situations to deal with here. One is how to address making the payments on time. The second is recognising the decisions you made that put you into debt and this unmanageable situation. The third is preventing yourself from of getting into debt again by making different decisions.
Let’s start with making payments. If you still have the money to pay your overdues, see if you can pay it directly onto the credit card. The interest on your credit card is considerably higher than the interest rate on your loan. Write to the collectors and explain your income and expenses and offer a monthly commitment that is affordable to you. Send the same letter to your loan and credit card provider too. Also explore legal assistance. There are many law firms that assist those in need on a pro bono basis. This will give you a better understanding of where you stand. It might even be a better option if the lawyer sends the letters to the banks and collection agency.
The second area to address is recognising the past decisions made by you that have resulted into this situation. Recognising those mistakes and knowing how to choose differently will help you ensure history is not repeated. At some point you have to ask yourself: “If I spend money on this, what consequence will I have to deal with?” And if your answer is going into severe debt, unmanageable debt and ultimately letting your spouse and children down by not being able to support them, then you should learn to say no. If you constantly say “yes” to everyone and everything, do not be surprised when you are faced with debt collectors and a bad credit history. This leads to the third area: preventing this from happening again.
Make sure your monthly commitments are affordable. Build an emergency fund to pay for unexpected costs as they will always come up. Debt is usually blamed on unexpected costs, however we should expect them. Learn to say “no” to unaffordable requests and look at saving for your own family’s future first.
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 email@example.com