I am from Egypt and have lived in the UAE since 2004. For the first few years I worked as a production supervisor for a company in Dubai Media City. Then I set up a media and advising business in 2014 and took a stake in a cleaning company using a Dh50,000 gratuity payment to finance the ventures. During that time I took out two loans and six credit cards with the total amount borrowed Dh470,000. Then I shut my business and sold my other business stake because I developed tinnitus and could not work. I recently took a new job at a real estate company that pays me a Dh10,000 basic salary. However, my debt repayments come to Dh20,000 a month and I have zero balance left on my credit cards to feed my family. My annual expenses are:
Rent: Dh50,000
School fees for two children: Dh33,000
Food expenses: Dh30,000
Utility bills: Dh12,000
Home phone line: Dh4,800
Health insurance: Dh11,900
Total: Dh141,700
The interest alone on the credit cards is Dh9,000 a month – how can I stop that? I want to cancel all the card without going through the courts or police. AE, Dubai
Debt panellist 1: Philip King, the head of retail banking at Abu Dhabi Islamic Bank
At present, your monthly financial deficit, regarding income to expenditure and debt repayments, is extremely high at over Dh20,000 a month. You are already in significant debt, which will continue to increase every month unless you take drastic action. However, I’m afraid the extent of current financial liabilities means that your options are limited.
Normally I would recommend you talk with your primary bank to work out a payment plan with what excess income you have, but, in this case, you have none. You will never come near to solving this issue if you do not decrease your expenses, or increase your income. It is up to you to determine what aspects of your circumstances you can change – but some options might include: selling any valuable assets you have, such as a vehicle; having your spouse and children move back to Egypt to stay with family so that you can save money on school fees and move into a smaller apartment, or shared accommodation, to reduce your rent; talk with your company about why you are being charged for health insurance as this is normally the responsibility of the employer; consider talking with a trusted family member who might be able to give you interest-free financing.
Unfortunately, with your salary and current levels of debt, it is very unlikely that any bank will offer you consolidation on your cards or loans as you are not even able to make basic monthly payments. You must solve your expense/income issues if you wish to work with a bank to find a solution.
Although it may be clear to you now that you have gone through this experience, what led to the situation you are in now was your decision to start a business without proper financing, and then your use of credit cards to carry you through the period of times you were not generating an income from the business, something we would strongly advise against. You should never start a business without the proper funding structure in place and you should certainly never start a business without the excess income to support yourself through the first few years when business costs are likely to exceed revenues. Unforeseeable events, such as the fact that you developed tinnitus, are more common that you imagine, so it’s always best to prepare and plan for worst-case scenarios.
Many have found themselves in similar situations before by using improper business methods, and I hope that this will not happen to you again. This is a very serious situation you find yourself in, especially as your spouse and children are at the mercy of your debt, so I do hope you will take the proper measures to immediately reduce your annual expenses, in addition to seeking out employment that will provide you with a higher income.
Debt panellist 2: Keren Bobker, an independent financial adviser with Holborn Assets
It appears that AE has made some unwise decisions, which has been compounded by a health issue. Due to the loans taken out during the time it was operating I assume the businesses were not successful, although I must also assume that a reasonable income was taken from the company for him to be able to take out the loans and credit cards.
A situation where someone is building up debt on a credit card is clearly unsustainable and this is a rather bleak situation. If AE’s income is just Dh10,000 per month he cannot support the debts or his family. He says, however, that this is basic salary and he is in an industry where commissions are often payable. Is he likely to increase his income with commissions? He says he sold his stake in a business so where did that money go? Does he have any other assets - either here or in Egypt - that can be sold to reduce the outstanding debts? Are any family members able to assist?
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To even consider making the repayments, AE would have to increase his income and reduce his outgoings. While I appreciate that it is not ideal, can his wife and children return to Egypt to stay with family and reduce the overheads, allowing him to focus on reducing the credit card debts at least? If not, can his wife get a job and increase the household income to alleviate the financial issues?
No matter the personal health situation, and I know tinnitus can be debilitating, if a person takes out personal credit they have a legal obligation to repay it. It is well known that interest is payable on all borrowing and lenders do not make a habit of suspending interest payments, even if someone is in debts and struggling.
Due to the size of the debt compared to earnings, there is unlikely to be an option to reschedule any of it, even to reduce the interest payable as it exceeds UAE Central Bank limits. I would think that if any of the lenders become aware of the level of debt compared to income, most would be very concerned about non-payment and would keep a very close eye on accounts. Assuming however, that all payments are up to date, AE has nothing to lose by speaking to the banks and explaining that he is struggling and asking if they can assist in any way. He would need to speak to senior employees who have the ability to make decisions and assuming at least one of the debts is with the bank where his salary is paid that should be his first port of call.
Debt panellist 3: Rasheda Khatun Khan, a wealth and wellness planner
Unfortunately there is no magic wand to make debt disappear. Over-exposing yourself financially with loans and credit cards is a sure-fire way to end up in deep debt. It starts with a thought process; 'I don't have the money for this, but it's OK I'll just borrow it from the bank.' What's missing here is the thought process of taking the loan in the first place. Does the total cost of the loan justify the reason for it? Can you afford the loan? This is not about whether the bank will give it to you but rather if you can afford the monthly repayments over the time period set.
You have to always ask yourself if a credit card is the best solution. There are very few reasons why taking cash off your credit card should even be an option; that should only ever happen in emergency scenarios. It appears racking up credit card debt is many people's first choice of accessing cash. We need to go back to the start and really understand the contractual agreement you are actually in.
Reviewing your circumstances at least every three months should be of top priority. Debt doesn't happen overnight. It's continuous spending over a period of several months and years. Over this time there are clear signs you are heading in a downward spiral and it is then you need to take a different course. Leaving it until you are four times your annual salary in debt leaves you with only drastic choices and perhaps unavoidable court and police proceedings. When you allow your debt ratio to be so big, you corner yourself into the very situations you want to avoid.
It's time to consider cutting all costs back. Sending your family home for this period of time needs to be considered. Look for consolidation loans with your current lenders. Try and switch your credit card debts into to loans. This will only stop if your monthly expenses are less than your salary.
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 better tackle their debts. If you have a question for the panel, write to pf@thenational.ae.