The Debt Panel: Help for my wid­owed mum left me ow­ing Dh80,000

South African bor­rowed from a friend, banks, and maxed-out credit cards to cover costs on the death of her fa­ther. Now she has turned to our ex­pert panel for ad­vice to get out of the red

The National - News - - BUSINESS - The Debt Panel is a weekly on­line col­umn to help read­ers tackle their debts more ef­fec­tively. If you have a ques­tion for the panel, write to pf@thena­tional.ae

Ibor­rowed Dh83,600 from a friend to help my mother when my dad passed away as she was go­ing to lose the house. He had been in hos­pi­tal at home in South Africa for months be­fore he died. I had to help set­tle her debts and give her money to live from. I also have debts with three banks:

Bank one – Dh100,000: one loan (Dh60,000) and two credit cards (Dh20,000 each).

Bank two – Dh20,000: one loan (Dh10,000) and one card (Dh10,000).

Bank three – Dh40,000: one loan.

The loans and credit cards have been ac­cu­mu­lat­ing as I lost my job in the in­sur­ance in­dus­try for a while and could not make the pay­ments. I now have my debts with Bank one and three un­der con­trol, but one Bank two and the loan from my friend are in a very crit­i­cal sit­u­a­tion. The bank has al­ready made a case against me, and my friend will do the same. My salary is only Dh15,000 a month and I have tried for months to get a con­sol­i­da­tion loan but this won’t hap­pen due to missed pay­ments.

I am start­ing my new job now. I don’t want to run away from any­thing and just need ad­vice on how to pay my debts. I also don’t want to go to jail as I have too many re­spon­si­bil­i­ties. I love Dubai; it is my home, but I have made a few stupid mis­takes I need to rec­tify. ND, Dubai

Debt panel­list 1: Kunal Malani,

head of cus­tomer value man­age­ment at HSBC

I’m sorry to hear of your loss. It is en­cour­ag­ing to see that you are not run­ning away from your re­spon­si­bil­i­ties and have the debts with two banks un­der con­trol.

It looks like the re­main­ing debt with Bank two and your friend still pose a risk, bear­ing in mind the bank has ini­ti­ated le­gal pro­ceed­ings. The first thing you should con­sider is con­sol­i­dat­ing your out­stand­ing obli­ga­tions for these two.

It is im­por­tant that you show signs of co-op­er­a­tion with the bank and have an open con­ver­sa­tion around ne­go­ti­at­ing an ex­ten­sion or reschedul­ing your out­stand­ing.

You may also want to con­sider en­ter­ing into dis­cus­sions with Bank three – with whom you are up to date with your pay­ments – and try to ne­go­ti­ate for them to buy­out and set­tle your out­stand­ing loan with Bank two. Since the in­ter­est rate on credit cards is higher than on per­sonal loans (as gen­eral rule – you should recheck this in your per­sonal case) you may want to en­sure that the buy­out loan set­tles the out­stand­ing on your credit card fore­most.

Fur­ther­more, you could also con­sider in­creas­ing your loan ten­ure with Bank three to the four-year limit to re­duce your monthly obli­ga­tions.

As­sum­ing you are suc­cess­ful in ne­go­ti­at­ing the buy­out and you set­tle your out­stand­ing – you could then en­gage with Bank one to rene­go­ti­ate the terms on your out­stand­ing loans with them as you will be show­ing the will­ing­ness to set­tle.

Banks do gen­er­ally ap­pre­ci­ate it when cus­tomers demon­strate their de­sire to set­tle their debts and may be more will­ing to en­ter into ne­go­ti­ated agree­ments with such cus­tomers.

You will need to show ev­i­dence of re­cent dis­ci­pline in credit re­pay­ments to be able to re­cruit the help of banks for the above op­tions to work. You could also ask your friend for more time or set up a di­rect debit in­struc­tion for small monthly re­pay­ments to him as a sign of com­mit­ment.

How­ever, even with do­ing ev­ery­thing above, this may still not be enough to man­age the is­sue. If it is pos­si­ble you may con­sider ar­rang­ing to dis­pose of any per­sonal as­sets you might have ei­ther here or back home in South Africa to help re­pay your friend and even some of your bank debt to help you get back on your feet as quickly as pos­si­ble.

Debt panel­list 2: Am­ba­reen Musa, founder and chief ex­ec­u­tive of Souqal­mal.com

Tak­ing a loan in crit­i­cal times is jus­ti­fied, how­ever fall­ing short on pay­ments is a bad sit­u­a­tion to be in. When you

men­tion that your pay­ments to Bank one and three are un­der con­trol, ex­actly how close are you to set­tling these debts? And since two of those debts are on credit cards, you re­ally should be fo­cus­ing on re­pay­ing them in full and clos­ing the credit card ac­counts to avoid pay­ing through the nose to­wards in­ter­est pay­ments.

Next, speak with your friend and try to strike a deal with him wherein you pro­vide him two cheques in­stead of one, so it will give you some ad­di­tional time to gather the funds.

Con­sid­er­ing the sit­u­a­tion with Bank two, you should first pay off the credit card and then fo­cus on the loan as the in­ter­est on the credit card is higher.

There are two meth­ods that can be considered while pay­ing off your debts – debt stack­ing and debt snow­ball.

Debt stack­ing is where you pay off your loans on the ba­sis of in­ter­est rates. It will help you re­duce your to­tal in­ter­est pay­ment to­wards your debt obli­ga­tions.

First, you need to rank your loan and credit card debts on the ba­sis of in­ter­est rate. The idea is to pri­ori­tise pay­ing off the most ex­pen­sive debt first and fastest, and then move on to the next one on the list.

Al­ter­na­tively, try the debt snow­ball method – a very ef­fec­tive medium of pay­ing off loans ac­cord­ing to a lot of per­sonal fi­nance ex­perts. Here, you start by pay­ing off the small­est loan and check them off your list. The debt snow­ball method is not as cost-ef­fec­tive as debt stack­ing, but can be psy­cho­log­i­cally more mo­ti­vat­ing.

You must also take a close look at your ex­penses and think of ways to lower them and free up some cash to use to­wards your debt re­pay­ments. This could vary from mov­ing to a cheaper ac­com­mo­da­tion, can­cel­ing your TV sub­scrip­tion or cut­ting back on recre­ational spend­ing.

Be­fore you com­mit to tak­ing on any new debt, care­fully con­sider how you will pay it off and whether it is a jus­ti­fi­able de­ci­sion to even be­gin with.

Debt panel­list 3: Michael

Rout­ledge, the founder of the debt ad­vice site save­mem­o­ney.ae

I’m sorry to hear your sit­u­a­tion has reached this point. Bor­row­ing from friends is never sim­ple. I don’t think I’ve come across a sin­gle case where bor­row­ing from friends works out well. Nor­mally it cul­mi­nates in the end of a friend­ship.

At present you owe Dh243,600, which is an ex­cep­tion­ally large amount for some­one earn­ing Dh15,000 per month. Based on a 50 per cent debt bur­den ra­tio, your monthly pay­ments would be Dh7,500 which would take you around three years to clear the debt.

I sug­gest you down­load our free debt sup­port pack­age (www.save­mem­o­ney.ae/prod­uct/debt-sup­port-ser­vices/), which will help you pre­pare a state­ment of ac­counts to of­fer your lenders a clear and trans­par­ent view of your fi­nances. You should also con­tact the Al Eti­had Credit Bureau and re­quest your credit re­port.

This will of­fer sup­port to your case when dis­cussing with your lenders. Us­ing the doc­u­ments pro­vided on our site, you should meet the col­lec­tions de­part­ments of your lenders and re­quest your debts are re­struc­tured in such a way that you can af­ford to ser­vice the debt us­ing 50 per cent of your salary.

In most cases, lenders will prob­a­bly refuse any re­quest to re­struc­ture the debt, but per­se­vere and keep push­ing to­wards your goal.

Be­ing in debt is a very dif­fi­cult sit­u­a­tion, how­ever I know from ex­pe­ri­ence the feel­ing you have when you man­age to reach agree­ments with your lenders and are then able to pay off your debt; it’s un­doubt­edly one of the best feel­ings in the world.

Only you can make this hap­pen, so get your head down and work hard at it – the ben­e­fits far out­weigh the work.

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