Delivery driver does not want to risk going to jail for Dh200,000 in loans
Our experts advise the resident, who is in India to support his ailing father, how to manage his expenses to avoid defaulting
Iowe more than Dh130,000 on three credit cards plus a loan of Dh70,000. I’ve had these cards for more than five years and have never defaulted, regularly paying the credit card statement’s minimum before the due date. I am currently in India for my father’s cancer treatment, as he is now suffering liver failure. I have spent a lot of money and now cannot repay the cards. My salary is Dh9,250 and my debts are: Outstanding / monthly repayment:
Credit card 1: Dh70,000 / Dh4,000 Credit card 2: Dh40,000 / Dh4,000 Credit card 3: Dh24,000 / Dh3000 Bank loan: Dh70,000 / Dh3040
Total: Dh204,000 / Dh14,040
On top of that my rent is Dh2,500 and my other expenses are Dh1,000. When I first took out these cards, I used to get regular calls from the banks offering cash or balance transfers, which I used to survive. Now, because I am in India and missing payments I am getting calls about the debt. I still need money after my father’s treatment for his medicine and regular check-ups. I’ve been borrowing from friends to survive, but now I am almost bankrupt. My job with a delivery company is also at risk due to my regular leave. I am concerned I will go to jail if I return to the UAE. What do you advise? KA, India
Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com
You are in a challenging situation as you will need to visit your father in India regularly if you return to the UAE. Your total monthly expense when just paying the minimum balance is Dh17,540 – with hospital bills it may add up to twice your monthly salary. Unfortunately, paying just the minimum balance is not sufficient as the card debt will continue to expand rapidly. You will be vulnerable to the sort of unexpected situations you now find yourself in.
You do risk jail if you cannot keep up with your minimum payments, lose your job and do not communicate well with the banks. If you abscond, you will still be liable for the debt – debt collection companies will track you in India and you risk arrest in the UAE if you ever return.
The one positive I see is that you have a good understanding of your finances – your monthly payments, expenses etc. Keep tracking these regularly and examining ways to improve each number. I sense also that you have been a dutiful customer of the banks, always paying on time. Unfortunately, you have also been their ideal customer, only paying the minimum for five years while the interest mounts up.
First you must ask one of your banks for a debt consolidation loan with a reasonable interest rate (i.e. not 40 per cent) to replace your card and loan debt. Try to talk to the most senior manager you can access, as they may have more authority to negotiate with you. Discuss a total amount, duration of loan, interest rate and monthly payment that is achievable given your other commitments. Highlight your good track record of payment to date.
If you manage this, do whatever you can to save up more so you can pay off the loan faster. This may include getting a better-paid job, taking a company loan, moving to a larger company so that the interest rate on the loan can be reduced, earning additional money, selling items you own etc. I assume you cannot get a better-paying job in India.
Stop using your credit cards or taking cash transfers that increase the total amount owed.
If you can find a friend, family member or institution to lend you money at a lower rate, this will help you greatly to get on top of your debt pile and start reducing it.
Debt panellist 2: Shaker Zainal, head of retail banking at CBI bank
I am very sorry to hear about your father, and I hope he recovers from his illness soon.
Unfortunately, at the moment you are not able to meet your monthly payments and as the majority of your liabilities are from credit cards, which will be accruing high rates of interest, you need to rectify this situation before your debts become uncontrollable.
To achieve your aim of becoming debt free, you have three options:
Option 1: You have three separate credit cards and a loan, however, you have not mentioned whether they are from the same bank or not. If any are from the same bank, you should approach that bank and work out a plan to consolidate your liabilities into one monthly payment with reduced interest. This will mean restructuring the liabilities over a longer tenure, but it will reduce the cost of your monthly repayments, which are currently unsustainable.
Option 2: Depending on what bank or financial institution your cards are from, you may be eligible to transfer your credit card debt into an easy payment solution, which traditionally comes with zero or lower interest rates. This will significantly reduce your monthly payments, but as in option one above, it will mean restructuring your liabilities over a longer tenure.
Option 3: Your third option is to consider a buyout loan from another bank. Approach banks offering this facility and explain your situation to find out if you can apply for a debt consolidation loan. Based on your profile (salary, place of work and length of service), some institutions might consider merging your entire debt into one monthly payment, which will make your payment schedule more sustainable, given your current income.
Also, you must find ways to cut costs and increase your income, such as moving to a cheaper accommodation or cutting back on all unnecessary spending. Based on your current work situation, you could also look for a higher-paying job elsewhere. Taking on some freelance work on the side could also be a good option to help you pay off your debts quicker.
Finally, if you have assets available, consider selling some of them to reduce your overall debt burden.
Debt Panellist 3: Ambareen Musa, founder and CEO of Souqalmal.com
You have amassed the majority of your debt on credit cards, the most expensive type of debt in the UAE. Given the easy access and high interest mix prevalent across the credit card market, many desperate borrowers like you end up burning through their credit card limits and getting stuck in a debt trap.
Since you’re already borrowing from friends and family to stay afloat, you probably don’t have access to any personal savings to make a lumpsum payment towards any of your debts. In this scenario, the next best option is to buy time and stretch your repayment tenure. And you will have to negotiate with the banks to be able to work out a new repayment plan.
Unfortunately, you have also been their [banks] ideal customer, only paying the minimum for five years while interest mounts STEVE CRONIN Founder of Dead simple saving
Conventional debt consolidation may not be possible in your case due to your high debt-to-income ratio and recent track record of missed repayments. Instead, you will have to approach the banks and credit card providers one by one, either personally or through a debt management company.
If one of your credit cards is with the same bank that you have your loan with, try and first contact this bank to request for a consolidation of the two debts. The consolidated debt can be stretched over a longer tenure, but don’t forget to negotiate to get the lowest interest rate possible. While a longer tenure will only offer you immediate relief, a lower interest rate will help reduce the overall cost of the loan.
Next, you’ll have to tackle the outstanding debts on the other two credit cards. Your best bet is to negotiate with the credit card providers and request for conversion of the outstanding balance into a regular loan with a fixed monthly repayment schedule. This will put a stop on the monthly accumulation of interest and late payment penalties on your credit cards.
If you’re unable to come back to the UAE due to your father’s ongoing treatment, you may appoint a legal representative to handle the negotiations on your behalf.
While it’s best to first try and sort things out yourself, if you’re unsuccessful in negotiating with the banks, you may have to enlist the services of a debt management company.
A debt management company would negotiate with the banks on your behalf to modify the loan terms and make repayments more manageable for you. Not just that, you would also receive debt counselling and advice on how to get rid of your debts faster.
Whatever you decide to do, make sure you stay in touch with the banks and keep them informed.