Prudence key to tackling debt

A multi-pronged approach is needed to help individuals from falling into the debt trap

Unmanageable debt has become an increasing burden for many families. Antonie Robertson / The National

"I can resist everything except temptation," wrote the Irish playwright Oscar Wilde. The predicament is familiar to many of us in the UAE, where the temptations are many. This partly explains why an increasing number of people, including those on high wages, are becoming saddled with debt. As The National reported yesterday, citing a survey by Citibank and YouGov, 88 per cent of those who earn more than Dh29,000 a month have credit obligations.

The figures are staggering, yet the phenomenon is not surprising. Seemingly “bargain” deals on everything from electronic goods to perfume can make the most disciplined spenders buckle and part with their hard-earned money. These small amounts can quickly add up, especially when the borrower is exposed to larger debts such as car loans and mortgages. Unmanageable debt has become an increasing burden for many families as their disposable income is being stretched by the rising cost of living and static wages. Many people are forced to go further into debt to service their existing loans, creating an inescapable cycle.

One suggestion that is often made to avoid debt is to shun credit cards. However, cards can be financially beneficial if they are used in a prudent manner and paid off before excessive interest accrues.

To address this issue, the Government has introduced Al Etihad Credit Bureau, which allows banks to make checks on individuals’ credit histories before deciding whether to extend more credit. Yet some banks still seem willing to grant relatively big loans and high credit-card limits to individuals with small incomes.

Tackling the debt problem requires a multi-pronged approach, including public-education campaigns and a more sophisticated approach to personal bankruptcy, allowing people to restructure their debt and work their way out of it. Tighter lending laws may also be required. In the end, it is up to both lenders and borrowers to behave in a responsible manner.