I owe Dh425,000 and my bank won’t help

This week our financial experts help a debt-stricken Dubai resident struggling to get the bank to address his problems

Icurrently have a personal loan with an outstanding balance of Dh425,000 – this is a consolidation loan that I took to clear off two smaller loans and a few credit cards that were maxed out by medical expenses for my son when he was ill. I have paid off all of the interest on this loan and have 35 monthly instalments remaining. I am finding it extremely difficult to get help from the bank with regards to restructuring my loan. My reason for requesting help was because I was out of work for a while earlier this year (the second time I was unemployed in the past 12 months) and I fell behind by three payments. The bank filed a case with the police, which has now all been resolved.

My new salary is Dh22,600 – over Dh4,000 less than what I was earning when I initially took the loan in December 2015. Presently, the EMI’s are more than 54 per cent of my monthly salary and after everything that happened a few months ago with the police case and then my account being on hold until the outstanding amount was cleared I find myself in a very difficult financial situation. In the threemonth period from March to June I repaid over Dh75,000 to the bank between my personal loan and my credit card. This is already in excess of the three months’ salary I received during this time. I believe this demonstrates my willingness to repay and clear my financial commitments with the bank but this has severely burdened other financial obligations that I have. I am behind on payments for my rent, car and school fees with my son missing the final term. It is now approaching a new term and I need to send him back to school.

I need the bank to restructure my loan or allow some sort of payment break until everything is back on track. I visited a branch more than a month ago and issued a letter stating most of the above, which they requested, and then also provided a salary certificate. When I followed up, I was told “it must be declined” – nobody has called me regarding this and when I asked to speak to the retention team I was told they would get them to call me – this was over two weeks ago. My experience with customer service at this bank has been very poor. I am a family man and have to provide for my family. We have been in Dubai for almost six years and have no intentions of leaving. However, we are on the verge of being evicted from our home due to missed payments and my son will not be allowed back to school until the new term fees are paid along with a payment from earlier this year when the cheque bounced. My car loan is also behind by three payments.

Is there anything that can be done to ease my financial stress? MD, Dubai

Panellist 1: Keren Bobker Independent financial adviser with Holborn Assets

This is an unfortunate situation as clearly MD wishes to make the payments to all parties and commendably has repaid the arrears that arose when he was without an income. The bank should be able to see this and that he wants to be a good customer, especially as he has kept them informed of his situation.

I suspect the issue with the bank is that the amount of the current loan, in relation to the current income, is in excess of the debt burden ratio (DBR) as set by the UAE Central Bank. This is the percentage of income that is used to repay debts and is limited at 50 per cent and was officially set at this level in 2011. In this case, the percentage is more than 54 per cent, so banks are not permitted to lend any more money. That said, MD is not asking to borrow any extra but simply to reschedule the existing debts to reduce the monthly repayments. This will give him the ability to meet his other commitments.

He states that the existing loan has just under three years to run so the bank could consider extending the term to 48 months, the usual maximum for most expats. This should reduce the monthly repayments, thus giving MD the extra breathing space that he requires and the bank is less likely to see any defaults on the debt. The downside is that MD will end up paying more interest on the borrowing over time but this could help with his situation in the short term and that has to be the priority. Of course, if he has any assets that can be sold to reduce the total amount owing that would also help.

It appears that MD has asked his bank to do something similar but they have not been as helpful as they might be. This may be because the staff he has been dealing with are not in a position to authorise any loans or rescheduling of debts that do not strictly fit their standard lending criteria. He may need to ask that his case be reviewed by more senior staff that appreciate that this would be a sensible solution for all parties given the overall situation.

Panellist 2: Michael Routledge Founder of savememoney.ae

To bring your DBR into the 50 per cent and below threshold you would only need to reduce the payments from Dh12,143 per month to Dh11,300. However, I’m unsure as to whether a small reduction like that is going to help you. Therefore, I suggest that you adopt a two-pronged approach to resolving your debt issues.

Number 1: It is of the utmost importance that you review your expenditure immediately, as it seems that even if your DBR was 50 per cent you’d still be struggling to keep up with your loan payments. On our site, we have a debt support download which contains a statement of account (SOA) format; this will help you budget your income. I’d suggest you sit down and lay out everything you spend so we can see where savings can be made to reduce your monthly spend on non-essential items.

Number 2: Talk to all of your creditors. While it can sometimes be difficult to get your point across to the person responsible for your account, they also must understand that you cannot give them what you don’t have. This is another good reason why it is very important that you complete a statement of accounts (SOA) so you can be totally open and transparent with your lenders, and show them that you’ve made a real effort to get yourself out of this predicament. Another reason why I always suggest that people complete an SOA is that it allows your creditors to question certain line items of your expenditure. For example, I believe it is wholly unfair for a person to ask a bank to reduce the payments of a debt when that person is sending large percentages of their salary back to their home country to support a family. While I

understand, and admire those who support their families back home, had that been made clear to the bank when the financial product was requested it would probably have been declined, and it is therefore not seen as a reasonable expense in the eyes of your creditors. Good luck on your journey to becoming debt free.

Panellist 3: Alice Haine Personal Finance Editor of The National

MD it is time to step up and take ownership of your finances. You have a family to support, a very large loan and you are behind on rent, school fees and your car loan. If that is not a very clear signal you are in trouble, then I don’t know what else is. Today must be the day that you turn things around because judging by your letter you have had a bad relationship with debt for some time. There are a few things here that need addressing. Firstly, I am sorry to hear that your son was unwell but I have to question why you did not have adequate medical cover in place to take care of these bills. Going forward, I highly recommend you get a policy in place to ensure you are all covered should the worst happen again. Health insurance is a key part of a financial plan as it takes care of those unexpected, and often very large, medical expenses.

The second point here is that once you have come to an agreement with your bank - and I have spoken directly to them on your behalf - then you need to address your financial behaviour going forward. Your key expenses must come first, i.e. your rent, your child’s education and your loan expenses. Any luxuries must be abandoned for now and that includes travel, nights out, takeaways etc. For now your focus must be getting your finances in order.

When it comes to rent, negotiate with your landlord to spread the payments across a larger number of cheques. The same applies to school fees, there are lots of credit cards that offer 0 per cent easy payment plans; you pay the year’s fees upfront and then spread the repayments across 12 months. This should not only secure a reduction in the overall school bill (schools offer a discount for early payment) but will make it more affordable to meet the expense. As to your loan repayments; if the bank eventually offers you a more affordable solution, repay their efforts towards you by meeting all your payments on time. Don’t miss a single payment as you do not want to risk any more issues and do not take on any more credit.

Having a job with a lower salary is unfortunate. Redundancy is increasingly common in these challenging economic times, but now that you have a new role, keep an eye out for a higher paying salary. It is always easier to secure a better salary when you already have a job. Also, find ways to increase your income. If you want to stay in the UAE, you need to be able to afford it. Does your wife work? If not, could she find a position? Are there any extra shifts or freelance work you can take on to increase your income? Is it time to sell your car? If you can’t afford the repayments find a cheaper way to transport yourself around the city. You are already in deep trouble financially and to avoid more issues, you must take this matter extremely seriously and slash your expenditure until you have steadied your finances. The final step is to start setting money aside (even a small amount) to build up an emergency fund for the future. This will be your rainy day fund should you fall on hard times again.