The Debt Panel: 'How can I pay off my debts and support my family?'

I have been sending money to my family since the beginning of this year, as they are struggling to cope with unemployment and the rising cost of living in our home country. Fortunately, I have a job in the UAE, but it seems I will be the main breadwinner for some time yet, as well as paying for my own daily expenses , such as rent, food and utilities. However, I don’t have any savings and I am also paying off credit cards and a personal loan. I am withdrawing cash from my credit cards to support my family, which I know is not ideal. My budget is stretched and I am finding it difficult to keep up with my loan and credit card repayments, while one of the cards I am using for my family is fast approaching its Dh10,000 credit limit and I am unable to pay it off in full. Should I consolidate my debts so I can continue helping my family financially? JD, Dubai A credit card is a financial tool that can help you to manage your daily payments and transactions conveniently, have access to short-term credit, avail attractive shopping deals and discount programmes, as well as earn rewards based on your spending. However, if your credit card spending is out of control, monthly payments and accumulated interest can also increase and lead to potential financial problems. Paying only the minimum amount required every month is a common practice adopted by many cardholders. However, bear in mind that this can also result in the debt continuing to grow due to compound interest charges, leading to larger regular payments and the threat of falling into a debt spiral. You have also mentioned that you are withdrawing cash on your credit card — this will only add to your burden as you will start getting charged a steep interest rate from the moment you have withdrawn the cash. With reference to your situation, one thing you can do immediately is speak to your bank and share full details of your financial position. Based on your proactive approach, your bank will probably be open to reviewing the situation and will possibly consolidate your outstanding debt into a personal loan with a lower interest rate and a longer payment term. Ideally, you should seek a low monthly repayment over a longer time period, which will provide flexibility while hopefully avoiding the need to borrow again. When approaching your bank for a loan consolidation, you should have a clear plan detailing your income and your expenditure — this will help you to clearly define how you propose to repay your borrowings and become debt-free. _____________________ It is important to also work on a budgeting plan and set aside a monthly limit on your discretionary spending outside of essentials, such as groceries, utilities, school fees and others. Try to foster a habit of putting a percentage of your earnings aside as savings to help you on a “rainy day”. As the saying goes: pay yourself first before taking care of your monthly expenses. It is commendable that you are reaching out for assistance with your situation to put in place changes before it is too late. I wish you all the best in arriving at a positive solution with your bank, as well as making the required changes with your budgeting and spending. We all may experience a time when we strongly feel the financial crunch. It is good that you are supporting your family. But if your financial situation is not addressed immediately, then chances are you will be caught in a spiral of never-ending debts. Based on your current situation, the best possible solution is to contact the bank and request a debt consolidation plan, which is offered by almost all well-known banks in the UAE. This will help you to manage all outstanding liabilities together in one consolidated monthly payment. By taking a debt consolidation plan, you can avoid the high annual interest rates applicable to your credit card liability. Instead, the revised monthly instalment figure will allow you to pay off your outstanding amount in a structured manner and help you to balance your earnings against your liabilities. It is advisable to prepare an in-depth analysis of your current financial situation that covers all your expenditures and other liabilities. Ask the bank for a monthly instalment you can pay without difficulty and help you to recover from your debts. The bank will assess your current situation and devise a debt consolidation plan in line with your repayment ability. To begin with, you must immediately focus on spending only on the essentials and make a realistic budget based on your income and not expenses. You can try to allocate funds for essential expenses such as rent, debt payments, food, utilities and transport. From the remaining amount, aim to build an emergency fund, which will make it easier to tackle unforeseen emergencies. Living beyond your means, even for noble reasons such as helping people, is risky. I appreciate your efforts to support your family. However, this is not sustainable and if you continue along this trajectory, you may reach a point where you cannot support others or yourself. I suggest talking to your family honestly and explaining that things are challenging for you. Check if there are any other means of assistance for them, for example, government or municipal support, charities or food banks. Unemployment may be an issue for your family members, but is there a possibility of part-time or freelance work to generate income? Look for alternative solutions so that you can minimise the contributions you make to them while paying off your debt. To tackle your current debt, there may be a possibility of consolidating them with a single loan or transferring your balance to a credit card with a temporary 0 per cent interest rate offer. However, I would never recommend withdrawing cash on credit cards, as it carries one of the highest interest rates you can incur. When you withdraw cash using your credit card, interest and fees are applied immediately and accrue daily. I would pay this back as a matter of urgency. You may face issues with your credit rating when applying for a consolidation loan. You can easily and cheaply check your credit score and report on Al Etihad Credit Bureau’s website. A good score of 680-plus will increase the likelihood of your credit applications being successful. If your credit score falls short of this, you may have to review your budget before applying for a consolidation loan or lower interest credit card. When thinking about freeing up more money in your budget, you have two levers at your disposal: reduce expenses or increase income. Check whether you can eliminate or reduce expenses — you must maintain your own budget before you can help others. You may be surprised at what you can lower — necessary expenses such as rent, travel and food can often be reduced. For example, you may be able to move to a cheaper home that is closer to work or take in a lodger if you have a spare room. The other option you have is increasing your earnings, even just temporarily while you pay off the debt. You could look at taking on extra shifts at work, training for a promotion or offering services or products in your free time. I wish you the best of luck in getting to a place where you can offer your family assistance from a place of financial security. The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

The Debt Panel: 'How can I pay off my debts and support my family?'

A Dubai resident is withdrawing cash from a credit card to send money home to loved ones