‘How can I pay off my debts and support my family?’

I have been sending money to my family since the start of this year as they struggle to cope with unemployment and the rising cost of living in our home country.

Fortunately, I have a job in the United Arab Emirates, but it looks like I will still be the main breadwinner for a while, in addition to paying my own daily expenses, such as rent, food and utilities.

However, I have no savings and am also paying off credit cards and a personal loan.

I withdraw money from my credit cards to support my family, which I know is not ideal.

My budget is stretched and I’m struggling to keep up with my loan and credit card repayments as one of the cards I use for my family is fast approaching its credit limit of Dhs 10,000 and I I am unable to repay it in full.

Do I need to consolidate my debts to be able to continue to help my family financially? JD, Dubai

Debt Speaker 1: R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD

A credit card is a financial tool that can help you easily manage your day-to-day payments and transactions, access short-term credit, benefit from attractive shopping offers and discount programs, and to earn rewards based on your spending.

However, if your credit card spending is out of control, monthly payments and accrued interest can also increase and lead to potential financial problems.

Paying only the minimum amount required each month is a common practice adopted by many cardholders.

However, keep in mind that it can also lead to continued debt growth due to compound interest charges, leading to larger regular payments and the threat of falling into a spiral of debt.

You also mentioned that you are withdrawing money to your credit card – this will only add to your burden as you will start paying high interest from the moment you withdraw the money.

Regarding your situation, one thing you can do right away is talk to your bank and share all the details of your financial situation.

Based on your proactive approach, your bank will likely be willing to reconsider and possibly consolidate your debt into a personal loan with a lower interest rate and longer payment term.

Ideally, you should be looking for a low monthly repayment over a longer period, which will give you flexibility while hopefully avoiding having to borrow again.

When you approach your bank for a loan consolidation, you need to have a clear plan detailing your income and expenses — this will help you clearly define how you propose to repay your loans and get out of debt.

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Watch: Why is everything so expensive right now?

It’s also important to work out a budget plan and set a monthly limit on your discretionary spending outside of essentials, such as groceries, utilities, tuition, and the like.

Try to get into the habit of setting aside a percentage of your income as savings to help out on “rainy days”. As the saying goes: pay yourself before you take care of your monthly expenses.

It is commendable that you ask for help with your situation in order to put changes in place before it is too late. I wish you all the best in coming to a positive resolution with your bank, as well as making the necessary changes to your budgeting and spending.

Debt 2 Panelist: Jaya Ratnani, Managing Partner at Freed Financial Services

We can all go through a period when we strongly feel the financial crisis.

It’s good that you support your family. But if your financial situation is not resolved immediately, chances are you will be caught in an endless spiral of debt.

Depending on your current situation, the best possible solution is to contact the bank and ask for a debt consolidation plan, which is offered by almost all well-known banks in the UAE.

This will help you manage all outstanding debts together into one consolidated monthly payment.

By taking out a debt consolidation plan, you can avoid the high annual interest rates applicable to your credit card liability.

When you think about freeing up more money in your budget, you have two levers at your disposal: reduce expenses or increase income.

Alison Soltani, Founder of Leap Savvy Savers

Instead, the revised monthly installment amount will allow you to repay your outstanding amount in a structured way and help balance your income against your debts.

It is advisable to prepare a thorough analysis of your current financial situation that covers all your expenses and other liabilities.

Ask the bank for a monthly payment that you can pay without difficulty and help you recover from your debts.

The bank will assess your current situation and develop a debt consolidation plan based on your repayment capacity.

To start, you should immediately focus on spending only on the essentials and make a realistic budget based on your income and not on your expenses.

You can try allocating funds for essential expenses such as rent, paying debts, food, utilities, and transportation. From the remaining amount, aim to build up an emergency fund, which will make it easier to manage unforeseen emergencies.

Debt 3 Panelist: Alison Soltani, Founder of Leap savvy savers

Living beyond your means, even for noble reasons like helping people, is risky.

I appreciate your efforts to support your family. However, this is not sustainable and if you continue on this trajectory, you may reach a point where you cannot support others or yourself.

I suggest talking honestly to your family and explaining that things are difficult for you.

Check if there are other ways to help them, for example, government or municipal support, charities or food banks.

Unemployment may be a problem for your family members, but is there an opportunity for part-time or freelance work to generate income? Look for alternative solutions to minimize the contributions you pay while repaying your debt.

To deal with your current debt, there may be an option to consolidate them with a single loan or transfer your balance to a credit card with a temporary 0% interest rate offer.

However, I would never recommend cashing out on credit cards as it carries one of the highest interest rates you can incur. When you withdraw money with your credit card, interest and fees are applied immediately and accrue daily. I would refund this urgently.

You may encounter problems with your credit rating when applying for a consolidation loan.

You can easily and inexpensively check your credit score and report on the Al Etihad Credit Bureau website.

A good score of more than 680 will increase the chances of success with your credit applications. If your credit score is below this, you may need to review your budget before applying for a consolidation loan or a low-interest credit card.

When you think about freeing up more money in your budget, you have two levers at your disposal: reduce expenses or increase income.

See if you can eliminate or reduce expenses — you need to maintain your own budget before you can help others.

You might be surprised how much you can reduce – necessary expenses such as rent, travel and food can often be reduced. For example, you may be able to move to a cheaper house closer to your job or take on a tenant if you have a vacant room.

The other option you have is to increase your income, even temporarily while you pay off the debt.

You might consider working extra shifts, training for a promotion, or offering services or products in your spare time.

I wish you the best of luck in getting to a place where you can provide support for your family from a place of financial security.

The Debt Panel is a weekly column to help readers manage their debts more effectively. If you have a question for the panel, write to [email protected]

Updated: September 21, 2022, 5:00 a.m.

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