I am from Pakistan and earn Dh15,000 working as a structural engineer in Dubai. I have a big loan, which is causing me problems. I lost my job in 2017 and was out of work for six months. During that time I still had to pay off my loans and credit cards. Last year I also lost Dh50,000 by investing heavily, making 70 trades in commodities and forex. My debts are: Personal loan: Dh240,000 Credit card 1: Dh10,000 Credit card 2: Dh10,000 Credit card 3: Dh6,500 <strong>Total: Dh266,500</strong> The most problematic liability is the monthly payment of Dh6,900 I make on the personal loan. It's pushing me further into debt along with the high interest on the credit cards and I would like to pay less. My monthly expenses are: Dh3,000 for rent; Dh1,150 for school fees, Dh6,900 for the loan payment and Dh3,000 for the credit cards; Dh1,000 for bills, Dh2,000 for groceries, Dh700 for transport; Dh1,000 for remittance and Dh2,000 for miscellaneous costs. This comes to Dh20,750. I am now behind on two months' rent and the school fees for my daughter’s second term. I only have Dh400 in my pocket today. I have three daughters and am currently unable to give them a happy life. I don’t know how I will survive this month as my current salary is already committed and I am short by Dh10,000 to support and feed my family. If the bank can reduce the personal loan payment to Dh3,000, it will make my life easier and I will gradually get back on track. I just need immediate help, even if someone pays the bank on my behalf and I repay them in monthly cheques. My company is also willing to provide a letter of guarantee to solve this problem. Please help. <em><strong>KN, Sharjah</strong></em> I’m sorry to say that you’ve learnt an important lesson about trading commodities and forex, which is that these are not investments but highly volatile markets on which you have made ill-informed speculations. As a day trader, you don’t have anywhere near the level of detailed analysis or technology as those working within major international financial institutions, so you can’t really make accurate trading decisions and are at a significant disadvantage. You now have a significant amount of borrowing representing nearly 18 times your monthly salary. Even though the bulk of this is from your personal loan, the amount you’re paying each month is placing you under a lot of pressure and you’re running a Dh69,000 annual deficit for your household budget, which will result in a debt trap unless you take immediate action. This requires you to go to your bank to seek a consolidation loan that would effectively wrap all of your debt into a single monthly repayment. The key here is to ensure that the tenure is over a long time frame, potentially 48 months, which would represent one monthly repayment of between Dh6,300 and Dh6,600, rather than the Dh9,900 you currently pay. In addition, look to limit your monthly expenses until you’re on a more stable footing. A disciplined approach could involve cutting down your remittances and miscellaneous outgoings. This would enable you to begin building up savings and feel increasingly financially secure while reducing the debt pile at the same time. You're understandably stressed. With debt draining away your monthly income, you're barely able to keep up with your living expenses and provide for your family. But there's always a solution. A good place to start would be the debt consolidation option. Approach your primary bank to see if they offer such a facility and whether you meet the eligibility criteria. Debt consolidation will allow you to consolidate your loan and credit card debts into one loan. Not only does that make it convenient for you to repay the debt, but it will also help to lower your interest outlay and possibly extend the overall loan tenure, making repayments easier to manage. If the primary bank doesn't offer this product, then reach out to the credit card providers one by one to see if they do. In case debt consolidation doesn't work out for you, you can request your primary bank restructures your loan. Under a restructured repayment plan, the bank could extend the loan tenure or reduce the interest rate, making your monthly loan instalments smaller and more manageable. You also have to start prioritising your debt repayments, and try to get rid of the credit card debt as soon as possible. Your loan might seem like the biggest problem to you, but it won't take long for the multiple credit card debts to spiral out of control, given the hefty interest rates UAE credit card providers charge. Next, you must see where and how to make cutbacks in your monthly spending. For example, move to cheaper accommodation to save on rent. You could also consider a more drastic measure such as temporarily relocating your family to Pakistan until you get a handle on your debt situation. Also ask your employer for a salary advance or an interest-free loan for a short tenure. These funds can go towards settling your credit card accounts. You must promise yourself and your family you will never trade commodities and forex again. Hopefully you have learnt that lesson, albeit the hard way. It is not a route to providing for your family. The Dh50,000 lost would have paid off your cards and a big chunk of your debt. You wouldn’t have had such issues if you had put in place a cash buffer of three to six months’ expenses to cover emergency situations. I would say most debt spirals start from not having this buffer in place. When you manage to resolve this situation, you need to start investing sensibly for the future. That means a small cash float in your current account to handle the inflows and outflows of the month, as well as a cash buffer in a savings account for emergencies. Then you can start to build up some savings for any large expenditures that you know are coming over the next one to five years, such as large education fees or a house deposit. Only then should you invest in the markets, ideally in a sensible mix of cheap, diversified stock and bond fund exchange traded funds rather than gambling on commodities and forex. The odds in those markets really are stacked against you. That is for the future – right now you need to survive. I strongly recommend building a simple cash flow tracker in Excel, showing what will flow in and out on each day and how that will affect your current account balance. Then you will be able to spot cash flow problems in advance and try to do something about it. As well as talking to the most senior person you can find at your bank to lengthen the tenure of your loan, make sure you do not use your credit cards for more payments. Also pay them off as quickly as possible, paying above the minimum payment as soon as you have paid off your arrears in rent and school fees. Talk to your company and see if there is any chance of a raise or additional work. See if there are other jobs out there that would pay better. Alternatively, take on extra work on evenings and weekends. Is your wife able to do a part-time job to help relieve the burden on you? See if you have any assets you can sell or any friends or relatives who can give you a short-term loan at a low interest. Avoid loan sharks though – they will get you deeper into trouble. Next, find ways to reduce your expenses. Can you free up the Dh2,000 of miscellaneous expenses? Can you stop remittances and have someone else support family members overseas? It may be tough to live like this for a year or so, but you will be building financial discipline for a better life. Whatever you do, do not go back to gambling on the markets – remember these dark days if you are ever tempted to do so. <em>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</em>
