As the shock waves from the banking crisis of 2008-09 reverberated through the global financial system, the media carried numerous reports of indebted expatriates fleeing the UAE.
No one knows how many left their debt behind, but it is well documented that some fled because they had loans and credit cards they could not afford to pay back.
“It was a very big problem in 2008 and 2009 when the financial crisis hit. A lot of people lost their jobs and couldn’t pay the banks back,” says Ambareen Musa, the founder and chief executive of the money comparison website Souqalmal.com.
However, many have not learnt the lessons of those who were caught out by the crisis. Overindebtedness remains an issue in the UAE.
While in other parts of the world borrowers in distress can declare bankruptcy, that option does not fully exist in the UAE.
So how do those struggling to make loan and credit card repayments get out of debt for good?
The overall process is by no means easy, but the first step is surprisingly simple.
“Make a list of everything that you owe,” says Preeti Bhambri, founder of the personal finance website moneycamel.com.
“People are so busy running their lives. When people get to a point where they are paying 70 to 80 per cent of their salary in financial payments, they don’t even know how much they have and to whom they owe what.”
Once you have worked that out, the next step is to compare the interest rate on every loan and aim to pay off the most expensive first. In the UAE that is generally a credit card, which tends to be around 36 per cent, compared to a personal loan, which would be around 12 to 15 per cent if it was an especially high rate.
“Then on the other side you need to sit down and look at what income you have and look at your expenses,” says Ms Musa.
“Cut down every single expense that is potentially not necessary. Literally go to the bare minimum. Then you get a number for how much you can use to repay your debt every month.”
If you are below the 50 per cent threshold – that is, your debt repayments are no more than half of your salary each month as per the law, you could seek a consolidation loan, which is available from banks including ADIB and Dubai Islamic Bank.
There are also banks which offer free balance transfers for the first six months, such as HSBC.
“The attempt should be in terms of a balance transfer to pay off as much as you can in that time,” says Ms Bhambri.
However, if after analysing your financial situation there is no spare money to pay off debt and you are struggling to make repayments, the only option is to approach the banks.
Emiratis who have bounced a cheque can have their debts settled by the Higher Committee for Debt Settlement Fund for Nationals, but expats are not exempt from criminal charges.
“I have seen people literally just walk out of the country because of the [threat of a] jail sentence, just literally drop everything and walk out with their passports,” says Ms Musa.
But even if a debtor is not in jail, banks can legally impose a travel ban by reporting debtors to the authorities – to prevent them from leaving the country before the debt is settled.
The key to preventing this is to be honest with your bank.
“Let’s say a customer misses a payment. We will call up a customer and first we ask them to make a payment, but if the customer says I am in financial stress right now and need some help, we say come and meet us, we have people to discuss the issue,” says Tooran Asif, head of personal banking at Mashreq, adding that like all banks it has a collections department whose remit is to recover the money.
The number of people who cannot afford to repay their loans in the UAE is “small and consistent” across the industry, says Mr Asif.
People with short-term problems, such as those who are between jobs may receive a payment holiday. Or those with multiple lending facilities could be offered debt consolidation.
“The [last option] is if a customer is really in financial stress and there is no temporary solution, there is no consolidation solution, so [we would offer] debt restructuring,” adds Mr Asif.
This would typically offer the customer a loan with a longer tenure and lower instalments.
HSBC works with its customers in a similar way. Like all banks, it has a special team to deal with people who are struggling.
“Our experience is that early contact gives us a much better opportunity to develop an effective solution. If any of your readers are in this situation, we encourage them to contact us and we will work with them to find a solution,” says Khalid Elgibali, head of retail banking and wealth management for the UAE and Mena at HSBC.
Experts say working with the banks may not solve a person’s debt problem overnight, but it will represent a significant step towards settling the debt.
“Then you can start all over again,” says Ms Musa.
Dozens of readers have contacted The National in recent weeks with tales of mounting debts they cannot afford to repay. Yesterday, we highlighted some of those stories in The National’s business section. Here Preeti Bhambri, founder of the comparison website moneycamel.com, advises three of the cases mentioned on how to solve their personal debt crises:
Ravikanta Olivera, 47, from India
Total debt: Dh250,000 on five credit cards and two loans to six banks.
Salary: Was earning Dh3,300 but now unemployed.
Ms Olivera was working as an executive housekeeper in Dubai until last month when she gave up work after suffering from a second stroke. She now cannot afford her repayments. Her husband, Lenson, who owes around the same amount, has been in touch with her banks about his wife’s condition. He sent a letter to one bank with a petition to waiver her outstanding loans because of her medical history. The credit card providers have refused this option. She has Credit Shield with one of the financial products and is waiting to hear back whether it will apply.
Preeti Bhambri advises: It is shocking to see that this individual has taken debt amounting to 20 times her salary. Barring the first two to three banks that would have extended her the debt facility, others would be aware of how leveraged she is and thus the risk associated with her situation. And since banks are aware of the risk, they [should] also be willing to settle if approached with a logical solution. The couple are still based in Dubai and cannot ignore the banks, or else there will be court proceedings, so they have to reach an agreement with each bank. The agreement should be to stop levying any more interest on existing debt, to agree on a settlement amount – as the current amount will be inflated with interest on interest – and lastly, decide a period within which these loans can be paid off. Negotiate for a payment break for the next three months. The first bank to approach should be the one with the largest loan. The couple will have to look for another family member to support them financially or, if health allows, for the lady to resume some kind of part-time work.
Gopal Kumar Choudhary, from India
Total debt: Dh327,000 on two loans and five credit cards.
He took a personal loan of Dh200,000 for an investment to lease a hotel, restaurant and club, which subsequently shut down. By then he had taken on more credit. Then he lost his job in February before getting another less well-paid position in May. His repayments are around Dh9,000 a month and his salary is Dh9,500. While Mr Choudhary has defaulted on payments for all of the credit cards, his request to reschedule his main loan has been approved and he has Credit Shield insurance on the second loan.
Preet Bhambri advises: Mr Choudhary should try to liquidate some assets from the failed investment project or any other assets back in his home country to get some headway with repayments here. Job loss insurance, which could have either given him a six-month payment break or paid a part of his EMI for a maximum of 12 months – each bank has a different policy – would have worked for him while he was unemployed but will not work now. He will have to reach an agreement with all of the banks individually to stop them levying more interest and help him restructure the debt amount. Apart from the loan he has a restructuring deal on, he should start to pay off just one more card (that has a lower balance) until he owes nothing on it. In the meantime he must make the banks aware of his intentions to repay so they don’t pursue him in a lawsuit. He can then slowly repay them one by one. It would also be worth exploring part-time work options over and above his regular job.
Ankit Thapa, a 25-year-old Nepalese sales merchandiser in Dubai
Total debt: Dh42,000.
Salary: Was earning Dh3,700 but currently unemployed.
Mr Thapa took a Dh42,000 loan in March so that his family in Nepal could shore up their house, which was just made of mud and wood, but it was destroyed in the earthquake. He asked his company for a holiday to support his family but was refused. He couldn’t concentrate at work so was asked to resign or be sacked. He resigned to get extra benefits such as the final salary payment but now he cannot pay the loan instalment and cannot find another job. (Mr Thapa’s name has been changed.)
Preeti Bhambri advises: He should look for a new job, even if it’s a lower salary (at least temporarily), preferably with accommodation and food. This would get him a legal UAE visa and allow him to use his income for repayments and even to support his family. In the meantime he should contact the bank about his situation to request a payment break until he finds a new job.