Did you know that the combined personal debt of all individuals in the UAE is close to AED 350 billion*? That seems like a LOT of debt, doesn’t it?
Souqalmal.com conducted a survey to evaluate the debt situation in the country and how residents are coping with personal debt. Here’s what we found out…
Current debt situation: How much is too much?
Majority of the respondents who participated in our survey (83 percent) have at least one active debt obligation. That doesn’t seem like a lot of debt, right? However, what’s alarming is that over a quarter of the survey participants (27 percent) have three or more active debts – These could be personal loans, home loans, car loans, credit card debts and such.
High debt alert: Majority have a DBR of over 50 percent
More than half of the survey respondents admitted to having a high Debt Burden Ratio in excess of the 50 percent threshold mandated by the UAE Central Bank. What this implies is that more than half of their monthly income goes towards debt repayments, and you’re left with less money to meet other essential expenses, save for the future or plan for financial emergencies. This signals a potentially risky and unsustainable personal finance situation.
Lenders take into account potential borrowers’ existing DBR to evaluate their repayment ability. And with credit reporting gaining ground in the UAE, a DBR of close to or over 50 percent would automatically disqualify you from borrowing any further. However, what’s unfortunate is that many of the borrowers struggling with debt in the country already have a DBR far above this limit.
[Related: 3 common debt traps and how to avoid them…]
Over 75 percent have missed a debt repayment in the past
So far we know that most of the respondents have at least one loan while some are juggling multiple debts, and majority have a high DBR. But neither of these prove that we’re in any serious financial trouble, right? Wrong! – If anything, these should be treated as red flags or warning signs of a personal debt crisis in the making.
Over three-fourths of the survey participants admit to having missed a debt repayment in the past. Out of these, 47 percent have missed repayments on their personal, car or home loans, while a whopping 84 percent have defaulted on credit card repayments. That is very alarming, because credit card repayments are the last thing you should miss – The exorbitant interest rates and heavy penalties are a sure-fire recipe for landing you into a debt spiral.
Escaping the clutches of debt, for good…
If you too are struggling with debt, what can you do to cope? Personal finance experts suggest the following ways to help you become debt-free faster:
- Cut back on your spending and follow a strict budget to free up more cash to settle the debts.
- Settle the credit cards first to avoid accumulating heavy interest, and don’t miss minimum monthly payments.
- Contact the banks to explore options like debt consolidation and debt restructuring.
- Look out for zero percent balance transfer credit card offers, which allow you to transfer your existing credit card balance to the new card at no interest for usually up to 6 months. Aim to pay it off before the interest-free period expires.
- Don’t take on more debt to pay off existing debt, and steer clear of illegal money lenders.
* Based on April 2017 data from the UAE Central Bank