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Abu Dhabi, UAEMonday 17 December 2018

The Debt Panel: 'I owe Dh82,000 to loan sharks for an apartment I sublet to earn Dh6,000 a month'

Borrowing from a loan shark can quickly become your worst financial nightmare, as this Dubai resident from the Philippines has discovered

Illustration by Alex Belman
Illustration by Alex Belman

I earn Dh6,000 a month from an apartment that I sublet. Unfortunately I needed some money to send back home so I ended up spending the rental collection. I then borrowed money from a loan shark to top up payments on the flat. I borrowed Dh105,000 and they asked me to pay Dh9,000 a month for 18 months. They do not confirm how much interest you pay; they just tell you the options of repayment.

Now the flat is close to being vacant and no collection is coming and I really need help on how to be free from the loan sharks. I paid off Dh9,000 for the last five months and tried getting a top up from my bank. When I did that, I found out I had a case against me from a bank. I ended up staying in jail for a night. This has now been resolved and I have to pay a penalty to the court. I have two kids and do not want to experience the same jail experience again. The loan shark is telling me they will proceed with a case if I don’t pay them Dh9,000 for this month as they cashed in a cheque from me and it bounced. I also have small debts with other loan sharks with very high interest.

In total I owe:

Loan shark 1: Outstanding, Dh60,000 – I initially borrowed Dh105,000. I paid Dh45,000 for five months, paying Dh9,000 a month

Loan shark 2: Dh15000 (Dh3000 monthly payment)

Loan shark 3: Dh7000

Bank loan 1: Dh2200 monthly payments

My expenses include school fees for the children and as well as other miscellaneous expenses. I am 30 and from the Philippines. KP, Dubai

Debt panellist 1: Keren Bobker, an independent financial adviser with Holborn Assets

KP does not own the apartment she is referring to in her letter, so in addition to the debt problems, she may also be breaking the law by sub-letting without her landlord’s permission. If this is the case she is acting illegally and in accordance with Article 25 of Dubai rental law she can be evicted.

I understand this is her only income, so I would also query how she has a residency visa if she does not have a job. It seems unlikely that she has her own business and trade licence. Has she perhaps previously been employed which allowed her to borrow in the first case? The fact that she has turned to moneylenders, indicates that she no longer has an income and has exceeded limits set on the Debt Burden Ratio by the Central Bank of the UAE.

The total monthly payments on the current debts significantly exceed KP’s total declared income and the situation is untenable. The unregulated lenders, the loan sharks, are going to demand that they are repaid in full and also charge ridiculously high rates on interest. I would be concerned that that may not follow legal routes to get back what is owed. Borrowing from an unauthorised lender in this way is never a good idea, no matter the circumstances. Whilst banks can and will demand the repayment of monies owed, they do so by legal means.

Based on the facts presented she has few options unless she has any other assets she can liquidate as the ‘loan sharks’ will not be amendable to her paying them piecemeal and over time. Does she have any family members that can assist? Does she have any assets, such as land or property, in The Philippines that she can sell? Many people do not want to do this but there is no real option in this case. The loan sharks will only get off her back if they are repaid in full.

This is an almost impossible situation and unless KP can find a way to break this spiralling circle of debt, by finding the funds (although not by borrowing any more) to repay the loan sharks, things will only get worse. Her income cannot support her debts so if she can increase this by way of paid employment she may be able, over time, to get back on track. But she does not have the luxury of time with some lenders.

The loan shark has threatened her with prison due to a bounced cheque but a recent change in regulation means that for bounced cheques for small sums, going to prison will no longer happen. There can be legal consequences with fines, but not imprisonment. The situation is unchanged for defaulting on personal loans.

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Read more:

The Debt Panel: Oil and gas employees 'in the worst financial situation' owe Dh330,000 to banks and private moneylenders

The Debt Panel: 'I bailed out my mum when my dad died and now owe over Dh240,000'

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Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

Borrowing from a loan shark may seem like the perfect short-term solution to your debt woes, but it can quickly become your biggest financial nightmare. As the name suggests, these loan sharks are predatory in nature, preying on vulnerable borrowers and tapping into their desperation. That's exactly how you've been sucked into this chain of borrowing from not one, but three of these lenders.

Even if you were to make the repayments as per schedule, you don't know how much interest you're being charged (most likely significantly higher than mainstream bank loans). And as in your case, when you skip payments, you don't know how the self-styled lender may choose to penalise you - from charging exorbitant late payment fees to intimidation and mental harassment.

Can any of your family members or friends extend an interest-free loan to you? You could use this money to pay off the loan sharks and get out of their vicious trap for good. Alternatively, have you considered ending the rental agreement on this property. You're going through so much trouble financially to generate a rental income that's not even guaranteed, plus you're paying through your nose towards interest payments to the loan sharks.

I assume that both your kids live with you in the UAE. Have you thought about moving your family back to the Philippines, at least until you sort this debt mess out? This can help cut your expenses and you'll be able to free up some extra cash to use towards the debt repayments.

You could also seek legal advice by visiting the Philippine Consulate in Dubai or the Philippine Embassy in Abu Dhabi. There you'll be able to access free legal aid provided by lawyers from Gulf Law who have significant experience in counselling expats dealing with debt issues in the UAE.

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Read more:

The Debt Panel: 'My husband secretly borrowed Dh100,000 on nine credit cards to invest in India'

The Debt Panel: Filipino has made all the cutbacks he can and still cannot repay his Dh185,000 debts

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Debt panellist 3: Rasheda Khatun Khan, a wealth and wellness planner

It's time to use all of your resources. Start with family - are there any members of your family you can borrow from to clear some of the debt? If you are also employed, can you request an advance and repay your employer out of your salary on a monthly basis? Do you have other assets you can sell? You also seriously need to rethink this sub letting business. I imagine the profit you are making on subletting is far less than the interest you are paying on your loans. Unfortunately the debts you have built up are now at the cost of any assets you have gained - and, as you have already experienced, at the cost of you and your family's wellbeing.

Taking out any loan requites careful consideration. Far too many of us sign up for credit without giving it much thought. Loans should be a temporary measure for a lack of cash flow or the repayment of a large asset. If taken out as a long-term solution, the need for debt consolidation arises again and again. The route of this problem is the pattern of overspending on a monthly basis. It's simple: if you are not earning enough to pay for your current lifestyle, then you have two options, dramatically reduce your lifestyle or accept the fact that you may have to relocate, as living here is perhaps no longer affordable for you or your family.

This may be easier to carry out in steps, for example, sending family back first. These are options you really need to consider. There is another option - seek ways to increase your household income. You have to make the calculation work. Expenses must not exceed income.

Revisit your expenses and see where you can cut costs. If there are two of you in the household and only one is earning, you should explore employment options for the other person as well.

Take some time to carefully consider your options and make decisions that support your wellbeing over the long term rather than only looking for short-term solutions.

On this panel this week: Keren Bobker, an independent financial adviser with Holborn Assets; Ambareen Musa, the founder and chief executive of Souqalmal.com and Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life

The Debt Panel is a weekly online column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae