I only have one credit card but I have maxed it out to more than 100 per cent of my limit. I would like to get rid of the debt; I owe Dh10,000. I am making automatic payments of 5 per cent of the balance every month but will that get it cleared? LS, Dubai
The first thing is to repay the amount owing in excess of the limit on the card. This is because exceeding the limit is in breach of terms and there could be additional penalties to pay.
Then only repaying the minimum amount each month will not make any inroads into the total owed as this is really only repaying the interest added to the outstanding balance each month.
As an example, if the interest rate was 30 per cent per annum – quite likely in the UAE with many being rather more as they are usually quoted as a monthly rate – the outstanding balance is Dh10,000 and the amount paid each month is just 5 per cent of the balance, there would be only a very tiny amount actually repaid each month. In this example, it could take 15 years to repay in full if an amount of just 5 per cent of the balance is paid as this will decrease a tiny amount each month in line with the outstanding balance.
If a payment of Dh500 per month is maintained every month, the debt could be repaid in just over two years. Obviously the more that LS can pay each month the sooner she will repay the debt and the less interest she will pay in total.
Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years’ experience. Contact her at firstname.lastname@example.org. Follow her on Twitter at @FinancialUAE.
The advice provided in our columns does not constitute legal advice and is provided for information only.
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