I live in Dubai and am currently trying to overcome my debts in the best way I can. I bought a property in India using a loan taken out here and have several credit cards, which I used to pay for activities here. I earn Dh9,600 of which Dh3,000 goes towards house rent, as I live with family. I have learnt my lesson from using credit cards and have already closed two cards; I plan to close a third in the coming month. However, the debts I still have are:
Personal Loan:
1. Dh130,000
Credit Cards:
1. Dh4,000
2. Dh30,000
3. Dh5,000 (I plan to close this in the coming month)
I am trying to find a solution to integrate cards one and two under my personal loan, but it seems that because of my previous payment history my debt burden ratio has taken a hit and the banks are unable to handle my request to consolidate. The bank behind credit card two has offered me a payment plan, which comes to about Dh900 per month, but even this is difficult for me to manage. What directions/guidelines should I follow? I want to close all of my credit cards and only have a single loan payment to repay. This would then take me out of this credit card debt scenario once and for all. PD, Dubai
Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com
You’re definitely on the right track with reference to your plan to close your credit card accounts one by one. Having closed and settled two credit cards, you’re now using your resources to settle one more. At this point it is worth checking again with your primary bank, or even other banks, if you qualify for a debt consolidation loan. If the response still remains unfavourable, focus on repaying one more card and check with the banks again.
It can be frustrating to feel like you’re running out of options to put an end to your debt problem, but a change in mindset and a smarter allocation of financial resources can go a long way in ensuring you wipe your debts off, for good. You’re halfway there with your commitment towards repaying the credit cards. Now it’s worth analysing how you can budget your income better.
Take a closer look at your expenses and see where you can make cutbacks. Can you temporarily send your family back home, maybe for a year or so? This can enable you to move to a smaller and cheaper accommodation, and save on rent. On the income side of things, you could also check with your employer to see if you could take a few months’ salary in advance or possibly a small interest-free loan.
Once the strict budgeting frees up some extra cash, you can consider opting for the fixed repayment plan offered by one of the credit card providers. Just keep in mind that you must never rely on credit cards as an easy finance option again. It really isn’t worth going through all the trouble and depleting your savings to make up for hefty interest payments.
Debt panellist 2: Rasheda Khatun Khan, a wealth and wellness planner
Being in debt is a real test of character. For some people it can be an eye opener and triggers change for a better future. This is when the person accepts full responsibility for where they are, understands that the current pain they are facing is the consequence of the decisions they made and they are prepared to do anything to change the situation, while also making a promise to never put themselves, or their loved ones, in the same situation again. This is when debt is a virtue, the kick required to get into shape and build the future you actually want. This is when the lesson of debt is learnt and changes made.
For others, debt is merely a repetitive pattern of behaviour, and until they can see the painful effects it causes to them and their loved ones, they will be unable to alter their situation.
Based on your solution orientated letter, I see you are on your road to true recovery. A huge well done on bringing down your debt systematically and successfully.
Now you must separate your living expenses from your credit card debt: ring-fence the debt off so you know it is not increasing every month because of spending more than your income.
Next, once your targeted credit card is paid off next month, focus on the one with the Dh4,000 outstanding balance.
Then, revisit your monthly expenses and see where you can cut back. Rent? Car? Groceries? Temporarily sending family back home? Do what you need to reduce your monthly expenses.
Also, do you have assets you can sell? House? Car? Savings policies? It’s more than likely that the value or growth you are making is nowhere near the interest you are paying on your debts. You can then reduce your overall debt by paying lump sums down, which in turn can either reduce your monthly commitment or get the debt paid off early.
Finally, explore zero per cent credit card balance transfers. This can give you a period of time to really reduce the debt because you will not be paying any interest.
By this point you should only have one loan and one card left. Use the reduction in your monthly expenses to over pay as much as you can. Most important here is to separate your current monthly expenses from your debt so as not to increase it any more. This will keep you on your path to recovery.
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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