“How can I pay off my debts with a reduced salary? “

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My salary was cut by 30% last year due to the Covid-19 pandemic. Before that, I was managing my debts and never missed any payments.

At the time, I had requested a three-month payment holiday under the Targeted Economic Support (Tess) program and my bank approved the request. It has helped me tremendously but the payments have resumed on my personal loan and my credit card and I am struggling because my salary has not been reinstated in full.

My debts are now too large for me to handle. Every month the amount I owe on my credit card goes up and all I can afford to pay is the minimum amount. I’ve almost used up my savings to meet the payments and I’m afraid I won’t have enough to pay them off next month.

I have reduced my daily expenses as much as possible and I feel trapped. I thought about filing for bankruptcy but I don’t know how to do it, or even if it’s a wise decision. Or do I have to apply for a debt restructuring first because my credit card and my loan are both with the same bank? DG, Dubai

Debt Panelist 1: Steve Cronin, Founder of DeadSimpleSaving.com

It is a horrible feeling to be trapped in debt, especially if you are feeling helpless. The most important thing now is to understand your numbers and your cash flow, and to take relentless action to get out of this situation. It should help you feel a bit more in control.

Unfortunately, people in debt think everything is fine until their wages suffer. Only then do they realize what a difficult situation they find themselves in, especially if they haven’t saved a cash reserve of three to six months of spending.

Your credit card debt is the most dangerous because it will increase quickly if you only pay off the minimum amount each month. You are going through this right now. Assuming you have a salary over 8,000 Dh (or 7,000 Dh at some banks), you should be able to get a consolidation loan.

This loan will combine your personal loan debt and your card debt into one loan. The interest rates on these vary but at least that will remove the very high interest rate on your card debt.

Your current salary, your employment status, and the fact that you’ve paid all of your dues regularly will all have a positive impact on your debt consolidation loan application.

R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD

Get closer to your bank, ideally in person, with your consolidation loan application as soon as possible. Bring information about your salary and debt, so that you are clear about what you can actually pay each month. You should also talk to other banks to see if they will take over the debt in a consolidation loan if you move your paycheck.

This is your best way out of the situation and you need to devote your time and energy to making it happen.

At the same time, see if you have any assets you can sell or if friends or family can lend you money to cover your card debt. You can even agree to pay them a low rate of interest, since they won’t get much from a bank deposit in the UAE these days.

Also see if there are other ways to earn extra income, such as online, working overtime, helping people in your community, or looking for other part-time roles.

Bankruptcy is an extreme situation and a last resort to be attempted only after talking to your bank and other lenders.

Debt Panelist 2: R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD

I am glad that you are conscientious and responsible in meeting your financial obligations.

As a first step, I urge you to contact your bank and discuss the possibility of debt consolidation, as this would allow you to combine the total of the outstanding amounts on your credit card and your loan into one personal loan.

This is a financial solution offered by most banks in UAE and would be well suited for your situation. To benefit from this service, the bank may ask you to transfer your salary to it and to close your existing credit cards when paying the contributions due. This is to your advantage and will help you control your monthly spending.

Your current salary, your professional situation, and the fact that you have paid all of your dues regularly will all have a positive impact on your application for a debt consolidation loan. This will allow you to significantly reduce your monthly payment obligations, considering the longer term. It will also ensure that you only have one installment to pay each month, which will help you manage your disposable income more wisely.

You are dealing with your financial situation in a timely manner and hopefully you will soon be on the road to financial stability.

Debt panelist 3: Carol Glynn, founder of Conscious Finance Coaching

Well done for keeping track of your personal loan payments and at least the minimum payment on your credit card. You have somewhat protected your credit score and avoided late payment penalties, which in turn add additional interest each month if the balance is not paid in full. You are conscientious and do not ignore the problem and that is commendable.

I would recommend trying to restructure your debt before considering bankruptcy. Have you spoken to your bank about your situation? Otherwise, request a meeting to discuss the option of a consolidation loan. Based on the information you have provided, this is probably your best way forward.

If they approve a loan, I urge you to cancel your credit card as soon as you have cleared the balance with the loan proceeds. It is important to protect yourself against credit card debt while you are paying off your loan.

It’s a common mistake I see people make in situations like yours. They feel relieved after getting a consolidation loan but continue to use their credit card and very quickly find themselves in exactly the same financial situation, but with more debt this time.

If your current bank isn’t helping you, talk to other banks about a consolidation loan before considering bankruptcy. Many will offer reduced rates or special offers for transfer loans.

Make sure you read the terms and conditions carefully. Ask questions like what is the interest rate, is it fixed, or will it increase after a while? What are the administrative or one-off costs charged? What are the late or non-payment fees? If there is an interest-free period, what will the interest rate be after the end of that period?

Do you have assets that you can sell and use the funds to reduce your debt? As you can see, credit card debt can grow very quickly if you don’t pay the full amount every month, so it’s important to find a way to pay off your credit card balance as soon as possible.

Personal bankruptcy, or insolvency, is a relatively new concept in the United Arab Emirates. The United Arab Emirates Personal Insolvency Law came into effect on November 29, 2019. Although the law can help in certain circumstances, declaring bankruptcy should always be a last resort as it can have a long-term negative effect on your business. financial situation.

It is also important to understand that bankruptcy does not automatically exempt you from paying your debts, because you will still have to pay your creditors some, if not all, of what you owe.

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

Updated: Aug 11, 2021 5:00 a.m.

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