My husband and I owe about Dh1.5 million between us. It started 10 years ago through a series of unfortunate events. First, we were given bad advice by a representative from a high profile financial consultant company, who strongly advised us to invest Dh10,000 a month into an offshore account even though we couldn't afford it. After doing this for two years, we stopped the contributions and cashed out the account losing most of the investment because of early closing. It had already cost us a lot of cashflow issues for that time.
Soon after, we lost our daughter to illness and I stopped working for almost two years. Accommodation and tuition fees had always been paid through my work so for almost two years, we struggled along on one salary paying all expenses ourselves. During this time, we racked up several credit cards and smaller loans to pay for the bigger expenses and personal loans. A year later, we had another child who has a chronic condition/illness. She then required several medical interventions and ongoing therapy.
Over this whole time, we kept acquiring new debt to pay the existing debt. When the Al Etihad Credit Bureau (AECB) was started, we were in a bad way. Now we have all our cards in settlements and are trying to get back onto even ground. We both have big personal loans and 10 credit cards in various stages of settlement.
We are from Australia and work in the construction and education sectors. Between us, we earn over Dh100,000 per month but we struggle to even buy food as our monthly repayments are Dh55,300. We are behind on car registration and medical insurance renewal. We live cheaply and frugally, because we have no money. We have two children, one of whom requires continuous medical assistance.
What we really need is a bank who will give us a second chance. If even one bank could overlook our bad AECB credit ratings and consolidate all our debt into one joint personal loan, we have the financial capacity to manage that one repayment and still be able to have some quality of life. We are absolutely desperate. LS, Dubai
Panellist 1: Philip King, the head of retail banking at Abu Dhabi Islamic Bank
I am so sorry for the loss of your daughter. This is a tough financial situation you are in, not made any easier by the difficulties your family has faced.
You and your husband's salaries make you top income earners in the UAE, so banks would normally be more than willing to grant you the maximum financing available, which is 20 time your salary – or Dh2 million between you and your husband. It is clear from what you wrote that your credit score with the AECB is stopping banks from consolidating your debt. You have not gone into detail as to why the information provided by the bureau is stopping banks from giving financing, but if it is to do with past poor performance in paying, your priority should be to spend the coming months not attempting to get a consolidation, but showing that you can make timely payments on existing financing to improve your credit score.
On average, banks will pay the most attention to your past six to 12 months of repayment performance, so spend the next year making timely payments, and begin re-approaching banks in around six months to work out a consolidation plan.
You and your husband, with your combined Dh100,000 monthly salaries, would each be eligible for around a Dh1m loan, giving you ample room to pay off existing debts and begin repayments on the consolidated financing.
If you are together making around Dh100,000 a month, and paying Dh55,000 towards repayments, this still leaves Dh45,000 per month to live on. If you are budgeting regularly for monthly expenses, to get spending under control you may want to consider reducing long-term expenses in other areas – perhaps securing more affordable accommodation, placing your children in more affordable schools, selling a vehicle or downsizing to a vehicle that is more affordable to insure.
Decreasing monthly expenditures would have the added benefit of allowing you to dedicate a larger proportion of your monthly income to payments, as with 10 cards the majority of your monthly payments must be going toward interest payments only.
To summarise, make regular and timely payments on your loans for a minimum of six months and then re-approach a bank, ideally where your salaries are deposited, to request a consolidation.
Without understanding what the rates and amounts on each card are, or the details of the settlement agreement you have agreed with your banks, it is difficult to comment in any further detail on card repayments.
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Panellist 2: Ambareen Musa, chief executive of Souqalmal.com
Dear LS, what you have gone through with your kids’ illnesses must have been emotionally draining and with financial issues on top of that I can understand your stress level and panic. According to the UAE law, you can’t get a new loan if your debt burden ratio (DBR) ratio is above 50 per cent, so we need to find another way to get you out of your difficult situation. One way is to find a bank to consolidate all your loans and credit cards and have you pay only one repayment every month. You will need to restructure your loans to allow you to get through this.
However, there are other things to do in parallel to show the bank you can afford a new repayment structure. Sit down, get a pen and paper and note down all your expenses. Cut every single one that is unnecessary – now is not the time for luxuries or anything above the basics. The only way to get out of the situation is by being extremely disciplined about how much you spend and what you spend on.
Stop using the credit cards to start with. Control your expenses by cash – it is harder to pay in cash from a psychological perspective than by credit card. Use cash to pay for your groceries and other daily expenses as this will remind you of every dirham going out of your pocket. Go down to the bare minimum and see if you can downsize your accommodation and school fees. Schools in Dubai can range from Dh2,500 a year to Dh100,000 so look at every way to save. Think about whether you really need a car right now or can you do with the metro. Consider selling the car which removes insurance and registration and downsize to a house which is in walking distance of what you need. This will save you quite a bit and the lump sum on the sale of the cars will allow you to repay some of your debts.
Once you have reduced your expenses to the minimum, make a list of all of your credit cards to determine how much you owe on each account and what interest rate you are being charged. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on the other cards. Also, find out which cards have a balance transfer service with the lowest rate.
Are there ways you can potentially increase your income – do you have properties you can rent out? The other way to do this is to turn to your family and see if they can help you repay some of the high-interest bearing debt you have.
The last step is to inform your banks about your situation and ask them to consider consolidating all your outstanding debts into one repayment. For this to happen though, you will need to show you are doing everything possible to spend the least amount and put all your remaining funds into repaying the debts.
Talk to all your banks, not just one. Some might allow you a couple of months payment holiday which will allow you to repay other debt and relieve you of the monthly cashout. But remember, a payment holiday is a temporary solution. The most important thing here is to find a long-term solution to repaying your debts.
Panellist 3: Michael Routledge, the founder of the debt advice site savememoney.ae
You’re certainly not the only person who has fallen foul of the “25-year horrendous investment”. While those plans can be a good investment for some, in the most part they are mis-sold to people who have very little chance of being in a position to continue to invest over a long period of time. Unfortunately, there is very little you can do about what you lost within that investment, as the small print will have explained the heavy exit charge. You should definitely double check this though.
As I have no information regarding your cost of living, it is difficult to offer much guidance for reducing your costs. But as your DBR is 55 per cent, you aren’t much over the 50 per cent threshold. Theoretically your creditors may offer to reduce your payments by 5 per cent to bring you into the 50 per cent DBR limit, however by the sound of your letter, saving Dh5,000 a month isn’t going to help.
My advice would be to be as open and honest as you can with your creditors; show them the full picture of your finances and work with them to agree on a settlement figure or restructuring of your monthly payments.
On our site, you can download tools I've prepared to help with budgeting that offer a clear and transparent view of your current income and expenditure, debt repayments etc. I've also included an instruction document to help with completing the forms you need to take your debt issue to your creditors.
On this panel this week: Philip King, the head of retail banking at Abu Dhabi Islamic Bank; Ambareen Musa, the founder and chief executive of the financial comparison site Souqalmal.com and Michael Routledge, the founder of the debt advice site savememoney.ae.
The Debt Panel is a weekly online column to help readers better tackle their debts. If you have a question for the panel, write to pf@thenational.ae.