Taking control of your finances
There are many people who have experienced being in debt in some form, at one time or another. Debt is not always an easy thing to manage and can sometimes be triggered by the slightest error in judgment. It is not unusual for people in debt to choose quick, short-term financing to make ends meet and then to find themselves struggling to make re-payments. Ultimately, the only option that seemingly remains is to take on more debt, to pay off not one, but multiple finances to meet different needs.
assess your debts
If you ever find yourself in such a situation, the good news is that there are alternative solutions in the market that can help to bring your finances back on an even keel.
It is important that you first assess your situation and make a clear list of all debt, repayments and associated costs. You should then rank them based on payment deadlines and urgency with the focus on paying off the most expensive debt first to the farthest extent.
debt consolidation
Debt consolidation is an approach that is becoming more established amongst banks in the UAE. It gives you the opportunity to merge any existing finances into a single finance to suit your repayment capacity, if you are unable to meet individual repayment schedules. Noor Bank, for example, offers convenient Islamic Personal Finance options designed to meet various needs — whether it is for your children’s education, a payment on your house, or your car. The bank also offers an option to consolidate these into a single finance, which gives you more peace of mind, instead of worrying about meeting multiple payments with numerous deadlines.
Another benefit is the low interest/profit rate. Some banks can buyout any of your existing finances from other banks and offer a rate which will enable you to save a substantial amount of money. However, it is important to consider the one per cent charge (as per UAE Central Bank regulations) levied on transferring the finance to another bank, and to make sure that there are no hidden charges, when you avail this option.
Early repayments
In contrast, you may suddenly come into an unexpected windfall in the future; it could be from a bonus at work to a family inheritance. There are a number of ways you can use this surplus money, such as making prepayments on any of your existing finances.
Generally, early repayments can result in financial gains, as your total financing costs will reduce. For example, if you return money on a finance ahead of schedule, the bank will stand to lose any interest/profit fees because of the early withdrawal of the finance. However, this usually means you would have to compensate the bank for the early repayment.
It never hurts to take a look at the contract signed between yourself and the bank, when you first took the finance. Any ‘penalties’ for early payment are usually stated in the contract, and as per UAE Central Bank guidelines, prepayment fees have been capped at one per cent of the amount being prepaid. Therefore, you always stand to enjoy financial benefits, mainly because the profit rates are highest at the beginning of your finance.
As the Al Etihad Credit Bureau aggregates individuals’ data across banks, paying off your finance early can also benefit your credit report, as your debts will be reduced once prepayments have been made.
However, bear in mind before making any prepayments that you should always have the financial ability to pay off the amount as a lump sum. In some cases, paying off early, may actually mean you are worse off, especially if you need another finance a few months later — as you would then need to pay processing, fees, insurance charges, and more. Remember, always be conservative and vigilant whenever you make your financing decisions.
as the al etihad Credit bureau aggregates individuals’ data across banks, paying off your finance early can also benefit your credit report