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Abu Dhabi, UAETuesday 25 September 2018

The Debt Panel: 'I am buried in debt and need a restructure with the banks'

The Dubai resident owes Dh360,000 on a personal loan and six credit cards

Illustration by Alvaro Sanmarti
Illustration by Alvaro Sanmarti

I have worked for the same manufacturing company for the past eight years, and earn Dh12,420 a month. However, due to deductions – such as a company loan – I only received Dh1,400 in my June pay cheque. I am buried in debt with six credit cards and one personal loan. My debts are:

Bank 1:

Personal loan: Dh175,000 / Dh5,600 monthly payment

Credit card: Dh11,731 (he credit limit is Dh10,000 and I have not paid since May)

Bank 2:

Credit card: D75,543 (the credit limit is Dh66,400)

Bank 3:

Credit card: Dh28, 640 (the credit limit is Dh16,000 and I am behind on payments by four months)

Bank 4:

Credit card: Dh36,160 (the credit card is Dh31,000 and I have not paid since June)

Bank 5:

Credit card: Dh26, 012 (the credit limit is Dh20,000)

Bank 6:

Credit card: Dh9,590 (the credit limit is Dh3,000)

Total outstanding: Dh362,676

I have asked the banks to give me some time as my mother passed away in May. I borrowed money to pay for the flights for my husband and daughter and the funeral expenses. Since then I have started to miss several payments My debt problems started when I applied for a loan to start a business in the Philippines and to support the medical needs of my father, who died in 2016, as well as the education of some relatives.

I also invested in several businesses, thinking it could help me support my family. However, the business ventures did not turn out well and I was left with huge debts and owed money to some relatives. Among my ventures were a printing business for mugs and plates, a poultry and goat business that failed due to the animals catching disease and a beauty sales business. There was also a liaison service. We had four staff and operating costs such as rent for the office but we only got enquiries, no clients, so I closed it.

In 2015, I delivered my daughter prematurely. My insurance covered Dh25,000 of the cost and I spent a further Dh14,000 on top. My baby was also in intensive care for 77 days and I still owe the hospital for that bill. My monthly expenses include transport: Dh900, groceries: Dh1,000, Utilities: Dh2,000, Phone; Dh400; childcare: Dh350, hospital bill: Dh500 and interest on IOUs: Dh2,000

Now my debts have gone up and I use my credit cards to pay the bills on other cards. Losing both my parents and having so many bills to pay is exhausting. The banks call me from time to time and the collectors are rude and intimidating. I’m grieving, I’m scared and I’m losing hope. I also sought legal advice; the consultant told me to wait for a case and just pay the penalty. But I cannot wait as I might be terminated from my company if I have a bank case against me. What do you suggest? NC, Dubai

Debt panellist 1: Shaker Zainal, head of retail banking at CBI bank

A lot has happened in the past three years, due to which you now find yourself in a debt spiral. Firstly, my condolences on losing both your parents. Such traumas can unfortunately affect our judgment in our day to day lives, including the management of our finances.

Your debt burden is too high, and therefore your first priority should be to avoid taking on any more debt, particularly new credit cards as their interest expenses are high. You must also control all your expenses tightly, otherwise you could find yourself in legal trouble, as some of the banks that you mentioned might execute proceedings to collect their receivables. As you rightly highlighted, such a scenario could have na impact on your employment, so it would be prudent to speak to your employer and inform them about the financial challenges you are facing and try to obtain their support for the continuity of your employment.

If you were to pay minimum 5 per cent on all your credit card outstanding plus the monthly instalment for your personal loan, this would amount to about Dh14,900, which is Dh2,500 more than your current income. Moreover, you have also taken a loan from your employer, thereby reducing your disposable income.

I recommend approaching the bank where your salary is credited and asking them to buy out all your credit cards and consolidate them into one loan at a lower interest rate and for a longer tenure (wherein the instalment becomes an amount you can afford to service on a monthly basis).

Alternatively, approach each bank separately and restructure each credit card with a lower interest as an easy payment plan, wherein the monthly instalment is fixed and would not be 5 per cent of the outstanding.

You have not mentioned if your spouse is employed. If he is, then seeking a joint loan from one of your existing banks to consolidate your loan could also help, as both incomes would be considered in that case. Finally, if you have any assets at home or in the UAE consider selling them to help with your immediate cash needs and provide you with some relief.

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Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets

This situation is untenable and I am struggling to see any real options. You say you have a salary of Dh12,420 per month, but in June you only took home Dh1,400 due to "deductions and a company loan". You also mention having to pay Dh2,000 a month in IOUs, so I presume these are other, less formal debts.

Even if you received your full salary, this is nowhere near enough to cover your debts and even basic living costs. The bank loan alone is 44 per cent of your gross income and your declared living expenses are Dh7,150 so these and the loan exceed your gross income. It is no wonder you cannot afford to pay even the minimum payments on the money you have borrowed. I see no mention of your husband working and an income from him but you have child care. Is he not contributing?

Continually borrowing to start businesses, knowing that you are already in debt, is foolish. Any new business requires a great deal of work to become successful and that takes time and effort. I am sorry to read of the loss of you parents and the problems your daughter had at birth, but these must be only part of the debt. I note that you are more than three months behind with various payments so you are now at the stage when banks are permitted to raise a police case against you and that can have serious consequences. While no bank or collections agency should be "rude and intimidating", they are going to be quite forceful if no payments are made. However, no debt collector should be contacting your workplace, although it may be wise to tell your employer you are having problems.

I don’t agree with the "advice" you have been given of not making payments. That just means more interest rolls up and penalties can also be added, especially as you have exceeded the limits on several of the cards. You will be unable to leave the UAE if a police case is registered and the debts are at such a level that restructuring is not an option.

I note that you have supported various relatives, so it may now be time so ask them to support you in return. Without support from others, your situation is only going to get worse. You need to review all your assets and sell what you can. If a bank sees that you are making an effort with payments, it is likely to be amenable. You also need to communicate with the banks themselves, as not doing so will only make a bad situation worse.

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Read more:

The Debt Panel: Single mother of four is being hounded by debt collectors over Dh43,000

It is possible to restructure debt directly with UAE banks, a Sharjah resident reveals how

A nine-step guide to help you renegotiate bank debts in the UAE

How an Abu Dhabi resident took three UAE banks to court and cleared Dh700,000 debt

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Debt panellist 3: Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life

There are many lawyers offering pro bono consultations in the UAE, so seek further advice. Get another opinion so you know where you stand from this point of view. Together with the lawyers, make attempts to freeze the credit card from incurring further interest charges. This is only increasing the amount you owe. Request settlements on the cards starting with the smallest balance. It may be possible to settle a card at a time.

Work together with your husband on this. If you are trying to manage this alone it will be extremely challenging, not only physically but emotionally too. Be a team and tackle it together. Is he earning an income? If not, you need to both focus on finding him work. You need to create as much income as possible. At the same time focus on doing more than a great job in your work. Do not give them reason to fire you. Make sure you work hard and always be adding value to your company.

You must recognise that borrowing money to start or invest into a business requires a solid business plan and plenty of due diligence. Simply putting money into it will not make a new venture profitable, especially when you borrow money to start up. The interest on a credit card or a bank loan is usually far in excess of 10 per cent, which means the business needs to make a 10 per cent profit just to cover the cost of borrowing.

Look at some other decisions you have made that have put you into further debt. Taking care of family is of high importance to you, but you have been borrowing money to give to relatives. It's time to say "no". You simply cannot afford to be helping others right now, not when you are in risk of losing everything yourself.

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 pf@thenational.ae

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