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Abu Dhabi, UAETuesday 23 October 2018

The Debt Panel: UAE resident earning Dh15,000 left counting the cost of bad credit score

Debtor who has already paid off Dh120,000 in loans, still has Dh60,000 outstanding on credit cards - which are maxed out each month 'just to get by'.
Clockwise from top left: Ambareen Musa, founder and CEO of Souqalmal.com, The National columnist Keren Bobker, Rasheda Khatun from Financial Life Planner, and Jamel Alvi, chief credit officer of Abu Dhabi Islamic Bank, during a roundtable panel discussion on why people are getting into excessive debt, how this situation can be resolved and where they can turn for help. Ravindranath K / The National and Marwan Alhammadi / The National
Clockwise from top left: Ambareen Musa, founder and CEO of Souqalmal.com, The National columnist Keren Bobker, Rasheda Khatun from Financial Life Planner, and Jamel Alvi, chief credit officer of Abu Dhabi Islamic Bank, during a roundtable panel discussion on why people are getting into excessive debt, how this situation can be resolved and where they can turn for help. Ravindranath K / The National and Marwan Alhammadi / The National

I had Dh120,000 debt and have just paid off two three-year loans. Now I am now focusing on the remaining amount of Dh60,000, which is on credit cards. However, due to a struggle over the last three years, with late payments, returned cheques (all paid in the end) I apparently have a bad credit score. The banks I had loans with refuse to top up and my applications with every other bank have been rejected. Even the bank I’ve banked with for over four-and-a-half years, and deposit my salary to, has rejected my application for a debt consolidation loan twice. The first rejection, I was told was due to my debit account hitting under a Dh10 balance and I was advised to keep a Dh100 balance for a few months to restore my profile. The second application was rejected due to my ‘bad credit report’. I joined a new company and my salary was late for six months. Yet I still paid all my bills. Obviously, I would have liabilities and a bad credit history if I’m under duress to pay several debts. How on earth can that be an issue when seeking a debt consolidation loan, to stabilise my outgoings? For three years my entire salary has gone toward the EMI and credit card repayments. I then live off my cards, which is why for three years their balance has not diminished - I max out each card every month just to get by. What is the point of the banks acknowledging debt burdens and offering debt consolidation, but then rejecting an application for related concerns to the inability to keep up. To date, despite all late payments or returned cheques (due to an account number error) I have paid everyone. My salary is Dh15,000 and my company is unlisted. Surely Dh60,000 over 12 months is not a risk. I can do it. If I got Dh60,000 from a ‘friend’ I would be able to give Dh10,000 a month back and it would be easier than this situation. How can I get around this? If at any time between now and closing my cards, I have an unforeseen emergency or expense I will be suffocated again. SP, UAE​

Debt panellist 1: Ambareen Musa, founder and chief executive of Souqalmal.com

Well done on paying off your previous two loans. The first step to resolving any personal finance issue is identifying the problem and trying to find an achievable solution. Since you’ve already paid off two loans, there’s a good chance you can also clear your remaining credit card debt.

Start with evaluating your monthly expenses and find out where exactly you’re spending your Dh15,000 salary. Identify expenses which can be eliminated immediately. Ideally you want to stop using your credit cards altogether to prevent further debt accumulation. Try reducing costs by moving into a smaller place or making lifestyle changes. Also, when paying off your credit cards, start with the one which has the highest interest rate. This way you get rid of the most expensive credit card sooner. Once it’s settled, you can use the amount you were paying towards the most expensive credit card, to settle the next one on your list.

If you can’t get a loan from the bank to help repay the remaining Dh60,000, see if somehow you can increase your monthly income. Check with your current employer if there’s a pay raise in the pipeline, especially if your performance has been good. Alternatively, would there be any other way of getting extra cash besides your salary? If you’re considering freelancing, be careful as it can breach your current employment contract.

If borrowing from a friend in the UAE isn’t an option, check if family or friends back home can help you out. Consider liquidating assets such as your car, jewellery or even property back home. While this option might not be ideal, it can get you out of debt and you can start all over again with a clean slate.

Lastly, have you thought about finding a new job? Your current role looks quite unstable considering they didn’t pay your salary for six months. Maybe it’s time to look for something where you will get a more regular, stable salary.

Debt panellist 2: Jamal Alvi, chief credit officer at Abu Dhabi Islamic Bank

Based on the information provided by the customer, there is a remaining debt of Dh60,000 on her cards, which she wants to pay off in 12 months. Also the understating is that the credit card debt is not with the bank where her salary is currently credited. The best option for the customer is talk to the bank where she has the credit card debt and ask them to convert the outstanding balances into a 12-month personal finance/loan based on the condition that she will transfer her salary to the same bank. The bank should agree because they will be receiving the salary of the customer, which will be a strong mitigant for restructuring the cards’ debt.

The Debt Panel brings together four financial experts: Jamal Alvi, the chief credit officer at Abu Dhabi Islamic Bank (ADIB); 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.