I lost my salaried job with a UAE bank a year ago and took up a commission-only job. My wife earns a monthly salary of Dh5,000, but it is not regular and there are often arrears of several months. We have two school-age children. During some months, I am able to earn around Dh7,000 to Dh8,000 in commissions. But other months, my family and I have to survive on my four credit cards. I use one to settle the other cards' dues and also use them to manage our expenses, including house rent, school fees and other miscellaneous costs and bills. Since I worked in a bank, I feel that I am disciplined in using my credit cards. However, it is getting increasingly difficult to manage our budget and family expenses this way and I am worried that our debt will become unmanageable, particularly with all the financial uncertainty caused by the Covid-19 pandemic. How can I improve our financial situation and make it more stable? <strong>BN, Sharjah</strong> Your worries are valid – this is indeed an unprecedented time filled with many uncertainties. However, it is great to see that you are being responsible and trying to minimise the risk of defaulting on your debt, as well as exploring more sustainable and long-term solutions for your financial situation. Cards are typically beneficial for short-term financing needs or emergencies, but it could be detrimental in the long term as it brings potential pitfalls such as overspending, high interest rates and unpaid balances that have a direct impact on credit scores. In your case, using your card to settle dues of another is not a sustainable solution and will ultimately lead you to a vicious cycle of borrowing. Firstly, you should familiarise yourself with the separate sets of terms and conditions for each of your cards, such as their limits, balances, due dates and interest rates. If you skip a card payment, you are at risk of hefty late payment charges and penalties, which also end up inflating your debt. Therefore, you must inform your bank immediately when you are at risk of defaulting on a payment. You can also request if it is possible to have instalment deferrals to allow you to take a short-term break from repayments. Living with debt and an unpredictable income can certainly be distressing. In order to establish a sound financial footing, it would be helpful for you to seek alternative avenues to improve your income. This may mean finding a job with a fixed monthly income that will offer you long-term stability and help lessen your reliance on credit cards. It is also highly recommended that you decrease your expenditure as much as possible through stringent budgeting, selling assets to raise funds, or even contacting family from home for financial assistance during this difficult time. Interest-free borrowing from friends or relatives will allow you to reduce your debts and avoid a further snowballing effect. Over-reliance on credit cards has become a serious problem for many residents like yourself in the midst of this pandemic. Being cash-strapped because of pay cuts, unpaid leave and redundancies has left people struggling to find ways to manage their expenses, with many turning to credit cards for respite. But depending on credit cards to pay for everyday expenses is not a sustainable solution in the long term. Since you have multiple credit cards, you could consider transferring the combined or majority of the outstanding balances to the card with the lowest interest rate or one that offers you a zero interest rate for the first few months. Speak to all of your credit card providers to see if this is a workable solution for you. You could also try to negotiate a fixed-interest fixed-tenure repayment plan on your credit cards to at least get rid of the accumulating interest. It is crucial to get out of the cycle of accumulating interest that comes with credit card debt, which tends to accumulate faster due to exorbitant interest rates averaging close to 40 per cent annually. Explore options like getting an interest-free loan from family members who are willing to help. And if you have any previous savings that you can tap into or an asset that you can sell, you can use this additional money to pay off some of the highest-interest debt sooner. To generate some extra income, could you and your wife look into finding another source of income, such as part-time or freelance work? The additional income can be used to pay off your credit card debts more quickly. Your current financial situation also calls for making cutbacks wherever you can. Make a list of your monthly expenses and see where you can save. Whatever you are able to save must go towards paying off your credit cards one by one. Pick a debt repayment strategy that works for you. You could try the "debt snowball" method and pay off the smallest credit card balance first. Alternatively, you could go with the "debt stacking" method and pay off the credit card debt with the highest interest rate first. It’s great to hear you are looking at ways to improve your financial situation. This is an important first step in getting better control of your family’s finances. There are a few options to help free yourself of your current credit card debt. First, you can try to pay off at least one of the cards in the next few months. Either you can look to pay off the one with the lowest limit, or the one with the highest fees. Once one card is closed, take the money you would have used on the charges to pay into the remaining cards. Increasing the amount you pay back will allow you to pay your cards off sooner. Your other option is to consider a consolidation loan to cover all your cards. You can then choose a loan repayment term that fits within your budget and will work out to be much more affordable than the individual credit card fees you’re paying each month. However, it’s important to note that should you choose this option, your cards may be closed and not available for future use. Finally, a last resort may be to negotiate your rent with your landlord or find a more affordable place to live. By cutting down on your rent, and ultimately your utility bills, you’ll free up more cash to use to survive on or to pay off your credit cards. I hope this helps to set you on your way towards a better future. <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>
