I am in the worst financial situation, unable to control or pay my debts and don’t know how my family will survive in the UAE. Even though some of my credit cards/loans have been restructured, we are still facing financial difficulties. Last month I missed the payment on two credit cards. My monthly debt payments come to Dh7,000 whereas my salary is only Dh8,600 for my job as an admin assistant in the oil and gas industry. My wife earns Dh8,500 in the same industry and we have one daughter. Is there any way to consolidate all my liabilities into one payment? I owe the following:
Loans: Amount owed / monthly repayment
Personal loan 1: Dh155,000 / Dh3,960
Personal loan 2: Dh20,000 / consolidated for 10 years with credit card debt
Credit Cards:
Card 1: Dh5,000 / Dh300
Card 2: Dh3,500 / Dh832 (consolidated for 10 years with loan)
Card 3: Dh10,000 / Dh350 (restructured) - missed last payment
Card 4: Dh16,000 / Dh300 (restructured)
Card 5: Dh13,000 / Dh308 (restructured)
Card 6: Dh10,300 / Dh500 (restructured)
Card 7: Dh5,000 / Dh400 - missed last payment
Meanwhile my wife also owes money. She has two loans and three credit cards with her repayments totalling about Dh6,000.
Our monthly expenses are:
School fee: Dh600
Utilities: Dh400
House Rental: Dh1200
Groceries: Dh500
Internet: Dh200
Remittance: Dh1000
Transportation: Dh500
Total: Dh4,400
We also have around Dh100,000 debt with other private moneylenders that have monthly interest too. My wife tried for a top-up loan with one bank and buyout loans with others to pay off the private money lender but got rejected because of the Central Bank's policy regarding the Debt Burden Ratio (DBR). Is there any other way to get her top-up loan approved? MG, Sharjah
Debt panellist 1: Philip King, the head of retail banking at Abu Dhabi Islamic Bank
Between your cards and personal loans, you have built up serious amounts of debt given your monthly salary – over Dh230,000 from banks, plus Dh100,000 from private moneylenders, and then your wife’s own liabilities on top. Given your predicament, it’s unfortunate that banks have continued to lend to you instead of intervening with constructive advice and support. This is a situation that the Al Etihad Credit Bureau was created to prevent, although I imagine you built up this debt prior to its launch.
The fact that you are starting to miss monthly payments on your cards substantiates the financial difficulties you currently face. It’s not quite clear how you have both become so indebted given your relatively controlled monthly expenses of Dh4,400. Did you take out loans to make a major purchase, such as a house or car? If so, your priority should be to immediately sell such assets to pay off your card bills and private loan, depending on which one is charging you the highest rate.
As you state, with total debt over 20 times your monthly income, you already exceed the Central Bank’s DBR and banks are unlikely to be willing to lend to you, particularly if you are already missing payments on your cards. It’s not clear as to your wife’s total debt, but with your combined monthly salaries of Dh17,100 and repayments of Dh13,000, you should budget for under Dh4,100 for joint monthly expenses. You can reach this by cutting down your remittance from its current level of Dh1,000 a month. It is also worth speaking to your banks to see if they would be prepared to restructure your repayments into a more sustainable programme. However, prepare for them to reject this request as they have already restructured your cards and the repayment rate you are paying on your total debt is already relatively low.
In summary, aim to sell any assets you have and then tackle your debt step-by-step, starting with those liabilities charging the highest rate.
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Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets
You are carrying a level of debt that is simply not sustainable and it appears you have borrowed even more money to cover the repayments on debts you already had. You have a joint monthly income of Dh17,100 but have monthly debt repayments of Dh13,000. This is far in excess of the Central Bank’s DBR which is sensibly set at 50 per cent of total income or 20 times monthly salary, per person. How have you managed to accrue debts far higher than this, especially as the lending guidelines were set in the first half of 2011?
I am also concerned that you have approached moneylenders. This is not a recommended approach as such lenders have high rates of interest and zero tolerance if any payments are missed or late. They will often charge high fees for late payments too, compounding the issues.
Unless your debts can be consolidated into personal loans, where the monthly repayments do not exceed Central Bank limits, it will not be possible to covert the credit cards to a personal loan. Borrowing yet more money is not the answer. From the figures stated, your monthly outgoings are only Dh300 more than your total loan repayments, so is there any way of paring that back just a little? What is the remittance amount of Dh1,000 per month?
We need to also bear in mind that outgoings, with the exception of rent and schooling, will increase by 5 per cent from January 1 with the introduction of VAT. As things stand, with only the minimum monthly payments being paid – which is really just the interest chargeable on the credit cards – your debts will not reduce. Unless you can increase payments, even by a little, the situation will not change.
Do you own any assets that can be sold? Are there any family members that can help you financially? Ideally, you need to pay a little extra to one card at a time, slowly reducing that and when it is paid off, move to the next one. This is called the “snowball effect” and while it takes time, it is a sensible and effective method of loan repayment.
It is also important that you stop using all credit cards, assuming you have not already done so. The payments that are overdue need to be made, as if you are in arrears by more than a couple of months there can be criminal consequences. It is never going to be easy but, with discipline and budgeting and a little help from family to get the (snow) ball rolling, it is possible to get on top of a debt situation like this.
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Debt panellist 3: Rasheda Khatun Khan, a wealth and wellness planner
At some point we have to address the fact that our monthly regular commitments are simply more than the household income. Yes a consolidation loans "fixes" the surface problem but it does not fix the larger problem of continuous over spending. The first thing you have to get right is the calculation of income and expenses.
It's simple - your expenses cannot exceed your income. This is the first set of decisions you need to make. Where do you cut costs? What do you remove? What do you change? Ask yourself if you can afford to live here? If this is not addressed you will come to a stage where no consolidation is possible and then the road leads to a legal case of which the outcomes are not pleasant. Once you know the longer term solution, a consolidation loan should be a step to get you there.
Also if you have any assets, consider selling it to release funds. You may have property, land, jewellery etc. Now is the time to pull upon all means. Are there any other ways of making income? Start brainstorming to think up options.
Remember consolidating debt only "fixes" the surface problem, you must examine your expenses to first fix the source.
On this panel this week: Philip King, the head of retail banking at Abu Dhabi Islamic Bank; Keren Bobker, an independent financial adviser with Holborn Assets 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
