The Debt Panel: I sold everything but still cannot pay back my loans

I work as a senior accountant for an oil company, earning Dh14,400 a month and am desperately looking for help on how to clear my loan and credit card debts that have piled up during my 14 years in the UAE. I started my career in the country in 2003 and, like other expatriates, started to borrow for my family in India when my income was low. My salary was not enough to meet my family's needs, so I took out one credit card in 2007, which later multiplied to several cards. To meet the minimum payment requirement I played between the cards and loans. Now I cannot take a step forward and fear this is the end of my life in the UAE. I am managing to stay on top of my payments by borrowing from my friends and relatives. I also explored all possibilities to reduce my debt. I sold my property, sold my car and sent my family back home to India. I have borrowed Dh100,000 from friends and family to cut my card debts from 11 to three and now pay them Dh2,800 monthly under an arrangement. But I still owe the following to the banks:

Monthly payment/outstanding balance:

Loan 1: Dh7,000/Dh250,000

Loan 2: Dh2,200/Dh46,000

Credit card 1: Dh250/Dh5,000

Credit card 2: Dh800/Dh14,000

Credit card 3: Dh2,000/Dh54,000

Total: Dh12,250 / Dh369,000

My monthly expenses include all my debt payments as well as Dh1,500 for food, accommodation etc, a figure I cannot reduce further and Dh2,000 for family expenses – again an amount I can't cut back. I would like to get a consolidation loan, but some returned cheques from the past have affected my Al Etihad Credit Bureau report. One of my loans is charging 39 per cent in interest. Is there a way out of this? I also approached my own bank for additional funds, where my salary is transferred, but they said their policy has changed on the amount that can be loaned – now only lend 15 multiples of a salary instead of 20. I do not want to leave the UAE, I want to stay here and settle my dues. SV, Abu Dhabi

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Debt Panelist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

Thanks for writing to the Debt Panel. You have received a lot of financing from banks in relation to your salary, and as things stand now, you need to reduce your monthly outgoings by around Dh4,000 per month to maintain payments to banks and others. You have already taken steps in the right direction by deciding to reduce your card debt from 11 to 3 cards and raising funds by selling assets.

And importantly, you have stopped taking on any additional liabilities. Now, you must start to steadily reduce the liabilities that you have, starting with the one that comes with the 39 per cent rate, which is unusually high and I assume must be a credit card debt.

Most likely, a large portion of your repayments are for this interest, rather than reducing principal. Your friends and family have been very generous in their help, and it's important that you don't take this for granted, and ensure that you take repayments to them seriously. However, given the situation that you are in, it may be worth asking them whether you can delay or reschedule repayments. Or if you have proven yourself as reliable, you may be able to persuade them to lend you more for longer. If possible, give your friends and family some sort of collateral to allay any fears they may have.

The banks that you are dealing with should actively want to help you make positive repayments – and to recover their money. So you should continue to talk to the banks to see what is possible. You should bear in mind that banks are constrained by regulation. They can only issue a new consolidation loan if the debt burden ratio (DBR) – the percentage of your income that you are using to service the financing that you have received – is less than 50 per cent. The DBR tends to be equal to about 20 times the salary – and your current obligations are around 25 times your salary. Maybe they could offer you a payment standstill, so you can concentrate on paying off the cards.

While the bounced cheques and your Al Etihad Credit Bureau report is a guide for your bank, they may well be swayed by your reliability in making regular repayments in recent months. Restructuring your personal loans to extend repayments would also help. Another option to consider, may be a balance transfer credit card, which allows you to transfer your existing outstanding amounts to the new card at no interest for usually up to six months. If you can reduce your combined debt to below Dh290,000, a consolidation loan becomes a viable option.

Debt Panelist 2: Rasheda Khatun Khan, a wealth and wellness planner

Borrowing more money to repay already borrowed money is not the cycle that will get you out of debt. You have taken huge steps in the right direction. Massively reducing expenses is a big one, together with selling assets to pay off debt. The question to be answered is whether you can actually afford to live in the UAE? – This means, on your current salary, can you manage all of your expenses? If not how can you increase your salary or income? Ultimately to live here you have to manage your lifestyle and all expenses with your salary, if you cannot, it's quite simple, you don't have the affordability to maintain living here.

The answer is not, borrowing money to cover those expenses. This is the mindset that needs to change that – it being normal to borrow money to cover living expenses. This path is one that leads to severe debt.

Option one is to put a case forward to each bank you have liabilities with and propose an affordable monthly repayment. Show them your income and expenses and ask for a solution. This way each bank is not loaning you more money but finding a monthly repayment plan that you can afford. Perhaps they can stretch out your term to reduce repayments or lower your interest rate. Make sure all communication is in writing so clarity of information passed and requested is there between both parties. 

Option two is to source a debt consolidation consultant. They act as a broker between you and the banks to help you negotiate a better deal. They also hold strong relationships with other banks to explore any other avenues. If using a debt consolidation company, be sure to understand your contract and fees. Ask all the questions you need to, so you can make the right choice.  Also, explore other avenues of generating income. Do you have any other assets to sell? What about household items? Could you instigate a pay rise? Work on generating income as well as repaying debt.

Debt Panelist 3: Ambareen Musa, founder and chief executive of Souqalmal.com

You’re obviously committed to finding a solution to get out of debt, and that’s a great start! Cutting down your credit card debts from 11 to three would not have been easy, but hey, you’re more than half way there so don’t lose heart.

Loan consolidation doesn't seem like a possible solution at this point of time, given your damaged credit history. But you can approach the banks individually to try to negotiate a revised repayment and settlement plan with them. Explain your current financial situation to them and request for a reduction in the interest rate on your loan or an extension of the loan tenure if possible. The payment holiday option can also be explored, wherein the bank can allow you to take a a few months' break from instalments before resuming them without incurring any late payment penalties.

With regards to your credit cards, the best option would be to put a stop on the interest drain by converting your existing outstanding balance into a limited-tenure fixed-interest loan. Speak to the individual credit card providers and convince them that this will help you pay off the credit card debt without defaulting.

We understand that you’ve tried every possible way to cut back on your monthly expenses, so how about exploring new opportunities to boost your income? You work in accounting, so you could look for part-time or freelance work to put your skills and knowledge to good use. How about taking private tuitions for school or university students? Alternatively, you could offer freelance accounting services to small businesses. 

Think of other ways to increase your family income. We’re assuming your wife does not work back home, since you’re currently remitting money to India to pay for your family’s expenses. If looking for full-time employment is out of the question, can your wife explore a freelance or work-from-home opportunity to bring in some extra cash? Consider options like running a home baking business or working as a substitute teacher at a school, or anything that she can manage to do in line with her qualifications and interests. The additional income can help pay for the family’s basic day-to-day expenses, while you hold back on the remittances and use that money to pay off the debt here instead.

If you’ve been working in your company for a few years now, this wouldn’t be a bad time to approach your employer for financial assistance. An interest-free loan from your company or a few months’ salary in advance could go a long way in helping you get rid of some of your most expensive credit card debt.

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.