I am stuck in a constant cycle of minor debt that I cannot ease myself out of. My wife and I have good jobs in the real estate industry and earn about Dh80,000 between us. This pays for an apartment in Jumeirah Lake Towers, school and nursery fees for two kids and two cars. Yet we have this niggling credit card debt of Dh80,000 that we can never seem to shift. Dh40,000 of the debt is here on credit cards - we have one each - and the other Dh40,000 is on a credit card in the UK, where we are from. We also have savings but we don't want to dip into those to pay off the debts as it seems like a step backwards and with a very young family, we are desperate to have some savings backing us up. At the same time the debts, though fairly small, stress us out as they are there all the time. We try to pay off a chunk every month but the something comes up and we are back to square one. Is a short-term loan the solution? Our worry is that if we do that, we will then run up the credit card debt again as UAE life is constantly full of unexpected expenses. We have been in Dubai for four years and also save Dh10,000 a month and don't want to stop doing that. What is your best advice to help us get rid of this niggling debt once and for all? JG, Dubai
Debt panellist 1: Kunal Malani, head of customer value management, UAE and Mena at HSBC Middle East
Your issue is a very common one, unfortunately, and I think you should consider taking out an Dh80,000 personal loan to help you pay off both credit cards. This loan will help in two ways. Firstly, it will become a committed payment of a fixed amount every month and you could even set it up as a direct debit from your salary account.
Secondly, interest rates on personal loans tend to be much lower than annual percentage rates, or APRs, on credit cards so your payments will go towards reducing your debt and not just towards paying interest.
If you take a loan for Dh80,000 and pay off both your cards, you will pay approximately Dh2,500 a month over 36 months or Dh3,500 a month for 24 months depending on the interest rates applied. This could affect your desire to save Dh10,000 a month but it’s only a small part of your monthly savings and it will clear all of your credit card debt, not to mention give you peace of mind.
Moreover, based on the facts you have shared, you seem to have a healthy level of income. If we were to make the following assumptions on your stated monthly expenses (roughly Dh20,000 in rent, Dh10,000 in school, Dh8,000 in cars and Dh15,000 in household, utilities and entertainment) you should be left with around Dh25,000 in discretionary income. I think if you streamline your finances and plan better, you may be able to save more than the Dh10,000.
Now on to your other issue of running up the debt again. If that’s a concern I suggest you reach out to your bank to reduce your credit limit to an amount that is enough to cover your day-to-day needs. I also suggest you ask your bank to set up a standing instruction to pay your new monthly card bills in full every month.
Building financial discipline is hard and temptations abound. All the more reason why we must be more vigilant about our finances and pay off our bills on time.
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Read more:
The Debt Panel: Customer service agent earning Dh6,000 built up Dh200,000 in debt investing in a friend's business
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Debt panellist 2: Rasheda Khatun Khan, a wealth and wellness planner
So many people suffer from this issue but most of the time it comes down to budgeting and not allocating the right amounts to the right expenses. This certainly sounds like the root cause here.
Unexpected expenses are inevitable and in fact should be expected. I'm sure you've heard yourself say: "everything has come all at once"? Again these types of expenses always do. You need to allocate your income effectively and build a cash flow system for your household; this is key to not only staying out of debt but also constructing a solid financial plan for your future.
First things first, establish what your true expenses are. You can use this link to download a free income and expenses planner. What's important here is that you allocate money for those irregular and adhoc expenses. For example let's take travel, which is usually the number one culprit for credit card debt. Have a separate travel pot and put money into it monthly. So, in this example, you would work out expected travel over 12 months and divide it by 12 to give you the monthly amount you need to be putting away. Do the same with rent and school fees. Divide the annual cost into 12 months and start putting it into a separate bank account. Don't be afraid to open several bank account to help you get organised. Consider it as your financial filling cabinet.
Other expenses to budget for are gifts and occasions and also miscellaneous expenses. In your miscellaneous pot, I recommend you build up to a month's salary. Use this pot for the 'unexpected' costs so that you are ready for them. Whenever you take money out, build it back up again over the following months.
Also, consider using some of your savings to pay off as much debt as you can. The interest rate charged on credit cards can be around 40 per cent per year. This means your savings should be making more than this to make it a better deal. So unless you are making more than what your credit card is charging you in interest, I suggest you repay some debt. As a young family you are certainly right in ensuring you have some cash available, so do keep some of those funds.
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Read more:
The Debt Panel: Former businessman with Dh470,000 liabilities is running up Dh20,000 new debt every month
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Debt panellist 3: Keren Bobker, an independent financial adviser with Holborn Assets
Compared to many situations we see, the level of debt in this case is not at all bad. But when someone is stuck in a rut and they don’t feel as if they are moving forward in life, it can be hard to see a way out. This is where a little objective advice can make a difference.
Clearly, JG and his wife have a good level of income, and they should be able to pay off this level of debt over a fairly short period of time. While converting the credit card debt to a personal loan, which would have a lower rate of interest, is an option there is always the danger that they will build up further debts on their cards and be back in the same situation.
They say that they have some savings, so assuming at least part of this is in cash, they have money set aside for unseen events and this one of the first pieces of advice that I give anyone. They should then only need their cards for real emergencies. The cards themselves should remain at their home, in an envelope at the back of a drawer, and not carried around so as to avoid the temptation of using them.
I suspect that the credit card debts are not reducing as they are paying no more than the minimum amount each month. This means that they are only paying interest, at no doubt a high rate, so the total outstanding will not reduce. They need to pay more than the minimum each month to reduce the debt.
Sit down and draw up a proper budget. They need to consider not just their usual monthly outgoings but to factor in annual or less regular outgoings. Cars need repairs on an ad-hoc basis, electrical goods break down etc, so factor that in too. If they keep a record of all outgoings, down to the last dirham, for a month or so, they will then see where their money is going and where savings can be made. We can all cut back on our expenditure, with some simple steps such as economising on our groceries, going to a cheaper supermarket, skipping a couple of takeaway coffees, or cooking at home instead of going out.
With the level of stated income, they should be able to save significant amounts but it can take a fresh mindset and some constant discipline to do so. Good habits can be learned at any stage in life and having a sensible budget and spending wisely, refusing to ‘keep up with the Jones’s’, and instead focusing on paying off debts as an absolute priority not only improves a financial situation but can make the difference between a life where you are stressed and worrying, and a much happier one.
On this panel this week: Kunal Malani, head of customer value management, UAE and Mena at HSBC Middle East; Keren Bobker, an independent financial adviser with Holborn Assets and Rasheda Khatun Khan, a wealth and wellness planner and founder of Design Your Life
The Debt Panel is a weekly online column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae.
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Top financial tips for graduates
Araminta Robertson, of the Financially Mint blog, shares her financial advice for university leavers:
1. Build digital or technical skills: After graduation, people can find it extremely hard to find jobs. From programming to digital marketing, your early twenties are for building skills. Future employers will want people with tech skills.
2. Side hustle: At 16, I lived in a village and started teaching online, as well as doing work as a virtual assistant and marketer. There are six skills you can use online: translation; teaching; programming; digital marketing; design and writing. If you master two, you’ll always be able to make money.
3. Networking: Knowing how to make connections is extremely useful. Use LinkedIn to find people who have the job you want, connect and ask to meet for coffee. Ask how they did it and if they know anyone who can help you. I secured quite a few clients this way.
4. Pay yourself first: The minute you receive any income, put about 15 per cent aside into a savings account you won’t touch, to go towards your emergency fund or to start investing. I do 20 per cent. It helped me start saving immediately.
Company%20Profile
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Citizenship-by-investment programmes
United Kingdom
The UK offers three programmes for residency. The UK Overseas Business Representative Visa lets you open an overseas branch office of your existing company in the country at no extra investment. For the UK Tier 1 Innovator Visa, you are required to invest £50,000 (Dh238,000) into a business. You can also get a UK Tier 1 Investor Visa if you invest £2 million, £5m or £10m (the higher the investment, the sooner you obtain your permanent residency).
All UK residency visas get approved in 90 to 120 days and are valid for 3 years. After 3 years, the applicant can apply for extension of another 2 years. Once they have lived in the UK for a minimum of 6 months every year, they are eligible to apply for permanent residency (called Indefinite Leave to Remain). After one year of ILR, the applicant can apply for UK passport.
The Caribbean
Depending on the country, the investment amount starts from $100,000 (Dh367,250) and can go up to $400,000 in real estate. From the date of purchase, it will take between four to five months to receive a passport.
Portugal
The investment amount ranges from €350,000 to €500,000 (Dh1.5m to Dh2.16m) in real estate. From the date of purchase, it will take a maximum of six months to receive a Golden Visa. Applicants can apply for permanent residency after five years and Portuguese citizenship after six years.
“Among European countries with residency programmes, Portugal has been the most popular because it offers the most cost-effective programme to eventually acquire citizenship of the European Union without ever residing in Portugal,” states Veronica Cotdemiey of Citizenship Invest.
Greece
The real estate investment threshold to acquire residency for Greece is €250,000, making it the cheapest real estate residency visa scheme in Europe. You can apply for residency in four months and citizenship after seven years.
Spain
The real estate investment threshold to acquire residency for Spain is €500,000. You can apply for permanent residency after five years and citizenship after 10 years. It is not necessary to live in Spain to retain and renew the residency visa permit.
Cyprus
Cyprus offers the quickest route to citizenship of a European country in only six months. An investment of €2m in real estate is required, making it the highest priced programme in Europe.
Malta
The Malta citizenship by investment programme is lengthy and investors are required to contribute sums as donations to the Maltese government. The applicant must either contribute at least €650,000 to the National Development & Social Fund. Spouses and children are required to contribute €25,000; unmarried children between 18 and 25 and dependent parents must contribute €50,000 each.
The second step is to make an investment in property of at least €350,000 or enter a property rental contract for at least €16,000 per annum for five years. The third step is to invest at least €150,000 in bonds or shares approved by the Maltese government to be kept for at least five years.
Candidates must commit to a minimum physical presence in Malta before citizenship is granted. While you get residency in two months, you can apply for citizenship after a year.
Egypt
A one-year residency permit can be bought if you purchase property in Egypt worth $100,000. A three-year residency is available for those who invest $200,000 in property, and five years for those who purchase property worth $400,000.
Source: Citizenship Invest and Aqua Properties
Fireball
Moscow claimed it hit the largest military fuel storage facility in Ukraine, triggering a huge fireball at the site.
A plume of black smoke rose from a fuel storage facility in the village of Kalynivka outside Kyiv on Friday after Russia said it had destroyed the military site with Kalibr cruise missiles.
"On the evening of March 24, Kalibr high-precision sea-based cruise missiles attacked a fuel base in the village of Kalynivka near Kyiv," the Russian defence ministry said in a statement.
Ukraine confirmed the strike, saying the village some 40 kilometres south-west of Kyiv was targeted.
The specs
Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
Transmission: 8-speed automatic
Price: From Dh192,500
On sale: Now
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Company name: baraka
Started: July 2020
Founders: Feras Jalbout and Kunal Taneja
Based: Dubai and Bahrain
Sector: FinTech
Initial investment: $150,000
Current staff: 12
Stage: Pre-seed capital raising of $1 million
Investors: Class 5 Global, FJ Labs, IMO Ventures, The Community Fund, VentureSouq, Fox Ventures, Dr Abdulla Elyas (private investment)
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
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UAE currency: the story behind the money in your pockets
French Touch
Carla Bruni
(Verve)
COMPANY%20PROFILE
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'My Son'
Director: Christian Carion
Starring: James McAvoy, Claire Foy, Tom Cullen, Gary Lewis
Rating: 2/5
Sam Smith
Where: du Arena, Abu Dhabi
When: Saturday November 24
Rating: 4/5
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends