The Debt Panel: 'I went into debt to invest but it turned out to be a Ponzi scheme and I lost all my money'

The Dubai resident is working part-time and raising a child on her own but is struggling to keep up with loan repayments

Steven Castelluccia / The National

Before the pandemic, I was not in a great financial situation as I was one of the thousands of people here who lost their money in the Exential Group foreign exchange Ponzi scheme at the beginning of 2020. The worst part of it was that I took out a personal loan to invest the money in the scheme.

While I was on maternity leave without pay, I had to top up this loan. I was unable to go back to work on time because of the pandemic, so we used the top up amount for daily living expenses, paid the rent and the expenses that come with having a newborn as my husband left us when my baby was five months old.

Fortunately, I am now back to work. However, I had to restructure my loan just before I resumed working because I could no longer afford to pay the monthly instalments. The bank extended the loan tenure to five years.

In eight months' time, I will have to start paying the loan’s original monthly instalment, which will work out to be 50 per cent of my monthly salary. Even if I repay 25 per cent of my income towards the loan, I will still not be able to save any money.

I have no other debts. However, would you advise me to apply for a car loan or credit card as I am always running out of money before my salary is paid and can’t afford to buy groceries or other necessities?

Or is there another way I can improve my income? I studied accounting and have banking experience in my home country and have at least three to four days off a week. Please advise me on the best way to get out of debt and start saving again. BA, Dubai

Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

This is an understandably difficult situation to be in. These types of fraudulent investment schemes, which prey on individuals in difficult financial situations, are on the rise, particularly during the pandemic.

That said, schemes like this have shed light on the importance of doing your homework before making any investment, such as checking the legitimacy of the company, who regulates them and in what jurisdiction; investment advice should only be taken from qualified and authorised professionals.

Given that your debt burden ratio (DBR) is at 50 per cent, with half of your income going towards your loan repayment, it might be difficult for you to get approvals for other financing applications. Normally, your DBR should not exceed 50 per cent of your total monthly income to be eligible for other financing facilities.

While cards are typically beneficial for short-term financing needs or emergencies, they could be detrimental in the long-term, especially if not managed properly. Because you don’t feel that you are actually spending money, there is a tendency that you will overspend, which will then lead to huge balances.

Credit cards also carry high interest rates and fees that make it harder and more expensive to pay off your debt. Similarly, a car loan can add more to your debt burden and would be unadvisable in your case.

Living with debt can certainly be distressing, therefore, we highly recommend that you decrease your expenditure as much as possible through stringent budgeting or even contacting family at home for financial assistance during this difficult time.

It might also be helpful to consider other part-time job opportunities given that you have a few days off per week, allowing you to be in a better financial position.

Nathan McFarlane, founder of AskHelpWith.com

Many people have fallen prey to cowboy investment schemes and in hindsight you should have checked if it was regulated. Ideally, you wouldn’t have used debt that you couldn’t afford to lose to an investment.

Taking out debt to invest is extremely risky as you are relying on the investment providing you a higher annual return than the interest rate on your loan, which in today’s investment world is not as easy as it once was. Before considering any investment in the future, it is advisable to do your due diligence on the investment and understand your risk tolerance by completing a risk profile.

Nevertheless, it sounds like you took the right steps by restructuring your debt to help you move in the right direction.

I advise you not to take out a credit card or apply for another loan to cover an already difficult situation. It is just papering over the cracks, so to speak, and will likely lead to further financial difficulties in the future.

Improving your income is the way forward and and you have both the time and a skillset that is sought after. Earning a second income either part-time or freelance is a great way to get you on back on track.

With permission from your current employer, you can have a second labour card and work for another company part-time. Alternatively, you can get a freelance licence.

We are now obviously living in a much more online-driven world, which means there are a number of websites where you can advertise your services as an accountant. Freelancer.com or Fiverr are good places to start. Perhaps target a certain amount of days you are willing to work and/or a certain amount of money you are targeting to earn from freelancing and then budget from there.

Felicity Glover, personal finance editor at The National

You’ve learned two very expensive lessons when it comes to investing. The first rule is to never invest money that you can’t afford to lose. The second is to never borrow money to invest because if you lose it all, you will be paying that debt off – plus interest – for years to come, which is where you find yourself today.

The good news is that the people behind the Exential Group scam have been jailed for many years, but getting your money back may be difficult. However, I hope you were able to submit a claim to recover at least some of your money, which was announced last year.

I understand that it is tempting to go further into debt to help pay for daily expenses, particularly as you are raising a young child alone. However, this could have serious financial ramifications for you in the long term, particularly if you are unable to keep up with the monthly payments.

Do you have any assets you can sell back home? This could be a property, a car or even another investment that you could cash in. Or is possible for your family to help you out in the short term?

Your accountancy and banking skills can help you to start saving for the future and pay off your debts. There are a number of freelance websites (mentioned by my colleague above) where you can register and set up a profile. But I would also recommend asking friends and family both in the UAE and at home if they know of anybody who needs a part-time bookkeeper/accountant to help them with their small business. Word of mouth can be a much more powerful tool than competing with thousands of others also looking for freelance gigs on digital platforms.

In the meantime, work on a budget and track your spending to find ways to cut back on your daily expenses. This could be anything from using public transport instead of taxis, moving to cheaper accommodation or cancelling subscriptions such as Netflix.

It will take some time to get back on track and start saving again, but if you are earning an extra income on top of your regular salary, sticking to a budget and paying off your debt, you will gradually start to see a difference in your finances.

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 [e-mail]