I am British, have lived in Dubai for the last three years and am currently in a serious financial situation, after losing my job in January. I am now working again, however, during my unemployment I missed a number of payments on a personal loan, a car loan and credit card. Seeing my difficulties, my landlord kindly extended some courtesy with my rent cheque. He is now demanding this money, totaling just less than Dh50,000, immediately otherwise a police case will be filed and I am expected to leave the property. However, I have nowhere to go and no one to turn to. I am completely alone. Obviously if a police case is filed, I cannot work and earn a salary to pay back the dues, and I have no way out of this, with no family or friends who can help. I am working so hard to get back on my feet, and get my life back on track, and I am slowly catching up with payments, therefore I simply can't let this happen.
As it currently stands, I have the following liabilities:
Car finance: Dh2,049 installment per month - total of Dh87,000 outstanding
Credit card 1: Outstanding balance of Dh49,000, which is Dh7,000 over the limit.
Credit card 2: Outstanding balance of Dh48,527, which is Dh4,000 over the limit
Personal Loan: Dh2,696 installment per month - total of Dh76,778 outstanding.
Landlord: Dh50,000
I have been severely depressed, as I am trying my hardest to get out of this situation. It is not just my life that is affected, I live with a friend, and up to now, they do not know the situation; they are currently struggling with finances also, and therefore not in a position to assist. I earn Dh20,000, and can manage the payments on my liabilities with the budget I am now putting in place, however, I simply cannot make the payment to my landlord, and face living on the streets. I have looked into selling my car, however, I will make a loss on this and have outstanding finance as it currently stands. Are there any organisations you can recommend who may help? It is not an option to go to the bank, or any friends or family, as they are not in a position to help. Any advice is greatly appreciated. RH, Dubai
Panellist 1: Kunal Malani, head of customer value management, UAE & MENA at HSBC Bank Middle East
It sounds like you have two situations:
1. Your current level of bank debt.
2. The Dh50,000 you owe to the landlord.
I think you might be able to explore an opportunity with the first situation, which could help you with the second. One thing you may wish to consider doing is to pay off enough of your credit card balance to come back under limit, as otherwise you would be incurring very high over limit fees every month. An alternative way of doing so would be to take out a fresh loan and also use some of this loan to pay your landlord. However, with your current debt burden ration (DBR) of almost 50 per cent (the max DBR you are allowed in the UAE), you are likely to face challenges in being able to get a fresh loan.
That said, I noticed that you have an outstanding personal loan. I assume this loan is from the bank to which your salary is transferred. You may consider talking to them about a “Top Up” loan for a larger amount and a higher tenure. This will potentially help you with three things:
1. It is likely to reduce your monthly payments, giving you some breathing room in your DBR.
2. It may help you bring your credit card outstanding balances under the limit.
3. It will also help you repay, or at least partially repay, your land lord.
You should note that a credit card limit is set to help to manage your spending. Exceeding your limit should be considered a very clear warning sign.
Finally, while not ideal, if you believe that you will get more for your car than you owe on your car loan, you may wish to consider selling it, given your situation, to help with your overall financing.
Panellist 2: Michael Routledge, founder of the debt advisory website, savememoney.ae
Firstly, it’s always difficult to negotiate with individuals, i.e. your landlord. Financial situations can quickly change and what seemed like a good deal at one point can soon turn sour when the lender needs his/her money back tomorrow. This is also an issue when borrowing from friends and family. We see so many cases of people borrowing from family, friends, and colleagues in which the relationship takes a turn for the worse when that person falls into financial hardship themselves and needs the money back immediately. Also, in many of the cases we see, the interest rates offered by ‘friends’ is far higher than the financial institutions of the UAE. In cases such as this I advise that people re-evaluate who their friends are.
The issue with your predicament is the need to give the landlord Dh50,000 immediately. Have you been to the bank at which your salary is deposited and enquired into a consolidation loan? It may be that a consolidation loan would help; it’s difficult to tell with the information you’ve provided.
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Although you still owe money on the car, it is worth speaking to the bank and requesting permission to sell the car, and transferring the remaining balance into a personal loan. Although this doesn’t remove the issue it would hopefully lessen the issue a little.
It is also worth talking to your creditors and getting a ‘settlement value’ making sure that you tell them that your DBR is about the 50 per cent mark. If you get the settlement value for each debt, plus the Dh50,000 for the landlord from a consolidation loan it may bring your DBR down substantially.
Panellist 3: Keren Bobker, an independent financial adviser at Holborn Assets
It seems that RH had the personal loan and credit card debt at the time he was made redundant so this is a harsh lesson for us all. If you have debts and things go wrong the situation is compounded. Was the personal loan, which I note is in addition to a car loan, and the credit card debt really necessary while he was in work? Had these not existed, or the credit cards had been paid off in full, the situation would have been much better. Just another reason why we tell people not to carry debts. He has been lucky that his landlord has been so amenable but it is not unreasonable that repayment is required. There are no organisations that will help alleviate the debt and banks are rarely very amenable when it comes to people in financial difficulty.
While I do not encourage taking any more debt, it appears that RH would have the option to reschedule his existing borrowing, and repay what is owed to his landlord by taking out a personal loan. He states that it is not an option to go the bank but I fail to see why and he has few other choices at this stage. A car with finance can be sold, provided the proceeds are paid to the lender first but it is not known whether the amount owing is more or less than the actual sale value of the vehicle. If more is owed then the sale is not viable.
A new personal loan could repay both credit cards in full but, and this is really important, he must not use them again and rack up yet more debt. This would allow him to consolidate the existing credit card debts at a lower rate of interest thus reducing the monthly outgoings and on his income he should also be able to borrow enough to repay the landlord.
Overall this will reduce his monthly costs, repay the landlord and allow him to get back on his feet. Paying off these debts over a number of years will not cost any less in the long run due to the interest payable but could resolve the current crisis.
If this course of action is taken, it must be seen as a fresh start but it is essential that no further debt is taken on. Once RH is in control of matters again and has some additional income this must be saved each month, not spent, so that he has the cash to make his future rent payments in a timely manner and not get into difficulties again. Sadly, we see too many cases where people get themselves out of a hole but foolishly build up more debt and it becomes a vicious cycle that cannot be resolved.
On this panel this week: Kunal Malani, head of customer value management, UAE & MENA at HSBC Bank Middle East; Michael Routledge, the founder of the debt advice site savememoney.ae and Keren Bobker, an independent financial adviser with Holborn Assets.
The Debt Panel is a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to pf@thenational.ae.
