Better together: Why consolidating debt may be the answer to your payment problems

Published November 9th, 2015 - 05:20 GMT
Staying debt-free means understanding the costs of living an reigning in extravagances. (File photo)
Staying debt-free means understanding the costs of living an reigning in extravagances. (File photo)

Living in a city where a moment sitting at home on the sofa feels like a moment wasted, it's all too easy to experience debt. The cost of socialising in the UAE is relatively high - most of us think nothing of paying around Dh500 for brunch - and that's without throwing in the general cost of living and the ever-increasing rent prices. Dewa, phone bills, running a car and the ongoing need to buy the latest gadgets and gizmos are all costs which quickly add up and, as a consequence, more and more people are falling into the trap of borrowing money thinking it's a 'quick fix' to help them get back afloat. Whether it's from a credit card, bank loan or even family or friends, borrowed money always needs to be paid back and all too frequently, despite best efforts, this 'paying back' can quickly become a problem and a struggle. Missing payments on credit cards and loans leads to fees and charges being added to the debt, which only worsens the original problem.

Because of this, more and more people in the UAE are opting to consolidate their debt. It means combining all debt - credit card/s and loans - into one single liability. Usually debt consolidation comes in the form of a personal loan, with a consumer using the loan to pay off all outstanding debt and then making one single payment monthly until the loan term is complete.

Debt consolidation is definitely gaining popularity in the UAE. Until recently it was a little known concept, but more and more people are becoming aware of the advantages of having just one regular payment to manage on a monthly basis, as opposed to juggling many. Not only is one payment easier to deal with on a personal level - the stress involved with dealing with just one payment is much lower than when many are in the mix - the interest rates attached to debt consolidation loans are often much lower than those for credit cards and other loan options.

Banks, including Abu Dhabi Islamic Bank and Mashreq, have reported a dramatic increase in the amount of customers who are trading in their 36 per cent a year interest credit card and applying for consolidation loans which can be as low as eight percent interest.

With the introduction of the Al Etihad Credit Bureau last year, which was brought in to help regulate lending in the UAE, consumer credit reports are issued as standard practice to financial institutions. This means there is no hiding from personal debt - it's shown in full to the banks in the UAE, giving them a clearer picture of any outstanding loans a customer may have. Depending on each given case, a bank may decide that a consolidation loan may be the safest bet.

It's important, if you do find yourself getting into debt, to take action immediately. Don't let it drag on and get worse. Consolidation loans, of course, are available and always a viable option and credit cards, when managed correctly, are also a great way to manage finances. As long as payments are made in full and on time they can be a positive addition to any wallet.

Those in the position of being debt free, taking steps to stay there is essential. For expats, it's important to remember that while your salary may be more than what you were receiving in your home country, as well as being tax free, the cost of living in the UAE is high.

According to Mercer's, the human resources consultancy, annual cost of living survey released recently, Abu Dhabi and Dubai are the 33rd and 23rd most expensive cities in the world. Therefore, that extra disposable cash someone may think they have, might not actually exist. To stay out of the cycle of debt, reign in any extravagant spending, calm down on the over indulging (however tempting it may be) and keep a track of all spending. Having a personal budget and sticking to it will ensure debt is avoided.

By Jon Richards

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