The Debt Panel: I owe Dh200,000 on six maxed-out credit cards and two loans – and my salary is Dh12,000

▶ An Abu Dhabi optometrist from India accumulated major debt following a medical emergency at home, and wants help to consolidate for easier repayments

Iwant to get detailed advice on consolidating personal debt. I am an optometrist from India and live in Abu Dhabi, where I earn Dh12,000 a month. I have built up the following liabilities after three-and-a-half years in the UAE: Two loans (personal and auto loan): Dh214,000 Six credit cards: Dh160,000 All my credit cards are maxed out and I pay around Dh5,700 a month just on the loan repayments. I have tried applying multiple times for different types of loan with various banks to consolidate my debt but due to my bad credit report, my application gets rejected. I am trying to find a job in a UAE private hospital as the salaries there for my profession are very good – Dh17,500 a month plus an accommodation allowance. This will help me clear my debts faster. I built up this debt due to a sudden medical emergency back home.

I am paying the minimum amount on the cards but there is no reduction in the total outstanding balance. It just goes on interest and the debt keeps building up. Now I am planning to bring my wife and daughter here by January but to cover their health insurance alone will cost me Dh667 each per month over six months (my company pays for the other six months). Is there someone who can help me regarding this financial issue? VO, Abu Dhabi

Panellist 1: Philip King, the head of retail banking at Abu Dhabi Islamic Bank

You have received a lot of financing from banks in relation to your salary, and you’re doing the right thing by trying to consolidate to make repayments more manageable – and importantly, to stop taking on any additional liabilities.

The banks that you are dealing with should actively want to help you make positive repayments – and to recover their money. They should not be keen on pursuing legal action, which is really a last option in the case of default.

However, 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 – you should not be receiving more financing than that level. However, in your case, your combined liability of Dh374,000 is over 30 times your salary.

That means a bank would be unable to give you a consolidation loan that covers your personal loans and all the credit card debt that you have accumulated because your repayments would be above the 50 per cent threshold.

Your monthly repayments on the personal financing – at Dh5,700 – are just under 50 per cent of your income, so should be manageable. But the card repayments are the big issue and these are now likely to have pushed your monthly repayments above your salary.

So, your priority should be to reduce the burden from the cards as soon as you can. You should go to your primary bank – the account your salary is paid into – and explain the situation, and try to get help from them.

Maybe they could offer you a payment standstill, so you can concentrate on paying off the cards. Restructuring your personal loans to extend repayments would also help.

But you also need to bring in more cash. Can you sell any of your assets, for example your car? Obtaining the better paying job would certainly help, so put your efforts into that. Make sure you tell your primary bank how you plan to repay it, and what time frame you are looking at.

If you can reduce your combined debt to below Dh240,000, a consolidation loan becomes a viable option.

At this point, it is best not to bring your family to the UAE, as there will be additional costs involved, and on a personal level, this is likely to be a stressful time in your life. I would wait until you are on a sustainable path to resolving your financial issues.

Panellist 2: Rasheda Khatun Khan, a wealth and wellness planner and the founder of Design Your Life

Let’s start at the beginning here. Debt does not just happen overnight. It builds up through consistent overspending. Waiting until you owe 31 times your monthly salary on living expenses, is too far down the line to have any reasonable options of debt consolidation.

To have more than two credit cards strongly suggests that your monthly household expenses are more than your monthly income. If you don’t address this, it becomes the fastest route to “out-of-control debt”. Responsibility must be taken much earlier. When the problem is overspending every month, consolidating your debt will not resolve this problem. The real work and question is, how do you live within your means?

Until you find a new job with a higher salary, now is not the time to bring your family over as you simply cannot afford to increase your expenses. It will not only be their medical insurance you need to pay for but their living expenses too, not to mention school fees.

The focus must be on reducing monthly expenses until the debt is reduced. Also stay focused on finding the private sector job opportunities. Be active and aggressive in your search.

Use all your connections and resources to help. The only way to get out of debt is to reduce your expenses and increase your income.

Finding a financial institution to offer you a consolidation loan will be tricky. Start with the bank you have the current loan with, then try the bank that holds the largest credit card balance. They might consider consolidation as the bank holds the debt anyway.

Check also the secondary banks and then debt consolidation companies who can help with the bank negotiations. Remember thought that consolidating the credit cards is your first priority.

Review the cards to see which has the highest interest rate. Compare them with the APR (annual percentage rate) and not the monthly rate. Transferring the balance of the highest interest card to another one is also a way of reducing the monthly commitment.

Seek help from family too. A family loan would certainly make the situation easier. Look at assets you have that you can sell. If you own property or land anywhere consider selling it to release more funds.

Be open to all options. Unless you can live within your means, consolidating your debt is not the answer.

Panellist 3: Ambareen Musa, the chief executive of Souqalmal.com

You have a high DBR. This means that more than half of your monthly income goes towards debt repayments, and you are left with less money to meet other essential expenses, save for the future or plan for financial emergencies. Admittedly, your profile will now appear risky and it will be hard for you to take out a new loan.

Your current salary is not enough to meet your monthly payments on a regular basis, so the first decision to take seriously is to get a new job with a high salary.

Secondly, you should organise your debts according to the interest rate. Getting rid of the debts that have the highest interest rate first is an effective way to reduce the cost of your debts.

A credit card interest rate is higher than the interest rate applied to a loan, so give priority to paying off your credit card debt first.

Look out for 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. That will ease the interest load on your credit cards

Also, I advise you that don’t bring your family to Abu Dhabi until your debts are zero. In your current financial situation, you cannot afford to pay additional expenses for your family

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