I have a credit card that was placed on a settlement plan in 2018 for three years. The monthly installments were set at 3,045 Dh, which I paid regularly until March of last year, when the company I worked for closed.
Although I have a new job now, it is at a much lower wage and I have been unemployed for most of the last year. From March to January, I tried to pay as much as I could to pay off the debt using my savings and my family’s money. In March of this year, I resumed payment of the agreed amount.
However, my lower salary means that I am not able to pay Dh3,045 every month, so I contacted the bank and requested a second restructuring which capped the payment at Dh2,000. I paid this amount in April and May.
Although the bank accepted my request, they asked me to pay an interest rate of 1.79% per month, which is equivalent to over 60% of the outstanding debt, which means that the payment will certainly not be 2000 Dh.
According to my bank, I currently owe 59,000 Dh on debt.
However, the outstanding balance was Dh 49,000 in March of this year. Despite regular payments and not using the card for three years, the amount owed is growing rapidly.
They have been charging a lot of interest and late fees every month since March of last year, and have offered no respite despite my plight resulting from Covid-19.
I asked the bank to explain what is going on and I asked for statements going back to March of last year.
What I would like to know is whether it is possible to waive the interest and fees charged and put the actual outstanding amount on a 48 month plan with a reasonable interest rate.
If that is not possible, can the bank make a 36 month payment plan with zero percent interest rate, which I have seen other banks do?
Banks are receiving interest-free funds from the UAE Central Bank as part of the Targeted Economic Support program and I don’t understand why this generosity is not extended to clients. Can you advise me on what to do? WA, Dubai
Panelist 1: Steve Cronin, Founder of DeadSimpleSaving.com
As you find out, credit card debt is dangerous if you don’t pay off your balance in full each month. The high interest rate and late fees cause it to skyrocket until the new balance is way over what you originally owed.
The interest rate from your previous restructuring is unclear.
This is important, so that you can understand if you still have “card-like” debt with high interest rates, or debt similar to a personal loan, where the rates are lower than a 10% cut rate. every year.
I would say your new restructuring is still in the danger zone of the card, with 1.79% per month well over 20% per year, especially if you can’t make the full payment on time each month.
You are right to ask for statements and to understand exactly what is going on. Emphasize it.
Ideally, what you need is a debt consolidation loan, especially if you have other debt elsewhere, which will restructure the loan at a much lower interest rate.
You will need a minimum wage of 7,000 to 8,000 Dh for this.
Credit cards are the most expensive forms of debt and as you have experienced, debt can multiply very quickly if balances are not fully paid.
Carol Glynn, Founder of Conscious Finance Coaching
Try talking to someone in the loan department who is experienced enough to make decisions, ideally in person, and show them what you earn and how much you can afford to pay. Document all interactions with the bank.
If the bank refuses to provide you with statements or the option to restructure the loan after 30 days, you can contact the Consumer Protection Department of the UAE Central Bank, online or in person at their Dubai branch.
Before taking such a step, you should ask other banks if they are willing to take over the debt in the form of a personal loan or at least lend you part of the balance, so that you can repay a loan. much of your debt.
The goal here is to reduce the interest rate while making sure that your monthly payment is not too high.
During this time, anything you can do to generate additional income, like selling assets or borrowing from your family, will help you pay off some of your balance faster.
The Tess program gives each bank the flexibility to decide which customers get relief and how it applies to their outstanding debt.
The UAE Central Bank allows banks to access funding for this program at zero cost, although the size of funding available to each bank is different.
This leads some banks to be more generous to retail clients than others, depending on their access to finance and concerns about how many defaulted loans they have, the stability of their overall balance sheets, and their overall balance sheet. their liquidity, that is, the ease with which they can respond to sudden demands for cash.
If you haven’t requested a Tess deferral, you should request one to take the pressure off.
This variable response to the program by banks gives you one more reason to talk to as many lenders as possible to assess whether another bank has a reasonable solution for you.
Debt Panelist 2: R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD
Times are difficult and I am glad that you remain conscientious in managing your finances. As you pointed out, the banks of the United Arab Emirates, with the support of the Central Bank of the United Arab Emirates, have implemented various programs to support customers affected by the pandemic.
For example, most banks have introduced loan moratorium options to provide customers with immediate relief from their monthly loan payments.
Others have also provided relief on card refunds, account balance requirements and other areas.
In addition, some banks have gone the extra mile and offered additional attractive debt restructuring programs.
I recommend that you approach your bank to discuss restructuring your debt.
Debt restructuring would allow you to convert your credit card debt into a personal loan, which could have a term of up to 48 months and carry a significantly lower interest rate.
This solution would significantly reduce your monthly payments and help you better manage your finances.
Since you want to repay the unpaid amount owed and you are currently employed, I have no doubts that the bank would support the development of a suitable plan to take into account your financial situation and help define a repayment plan within the limits. your ability to pay, in particular given the current scenario. .
Hopefully your financial situation will return to normal soon, so that you can plan to pay off the loan sooner than expected.
Panelist on Debt 3: Carol Glynn, Founder of Conscious Finance Coaching
Can you take out a consolidation loan with another bank? It would be a cheaper alternative to paying on your credit card and clarifying your total cost and monthly payments.
You can probably extend the term of the loan to allow for a payment you can afford to pay consistently each month. Credit cards are the most expensive form of debt and as you have experienced, debt can multiply very quickly if balances are not fully paid.
This is a very common misconception that people have when using credit cards. They are only a good financial tool if the balance can be paid off in full each month. Otherwise, they can cause costly and stressful long-term financial damage.
Lenders charge hefty fines if the minimum balance is not paid and interest compounds daily, so you pay interest on the card balance plus fines and interest from the day before.
You can also try asking other banks for a balance transfer. As you mentioned, some offer zero percent interest for up to 12 months, but most charge an administration fee to facilitate the arrangement.
This is a good option only if you can afford to pay off the debt in full within 12 months. Otherwise, you will likely find yourself in the same situation a year from now, with high interest rates on credit cards making it difficult to pay off debt.
Have you formally submitted an exemption request under Tess? If not, you can do it now. But I would like to caution, most banks only offer this for a limited time after the event that caused the job loss or income reduction.
The Debt Panel is a weekly column designed to help readers tackle their debts more effectively. If you have a question for the panel, write to [email protected]