Break free of credit card debt

Ah, credit cards – ain't they lovely? They are lightweight and easy to carry around. They are widely accepted. They look nice. They feel nice. Best of all, they are loaded with cash.

Unfortunately, as many a weather-beaten credit card owner will tell you, credit cards are also loaded with heartache, worry and stress. Modern lifestyles nearly demand that you own a credit card in order to enjoy modern living. But are you ready for the downside of plastic cash? Read on to find out.

1. YOU BECOME A PRIME SALES TARGET

One of the first things you learn about becoming a credit card owner is that it is so easy to spend money you do not really have. Typically, a gold card offers upwards of a Dh30,000 credit line, which is a lot of money to companies who have stuff to sell you. A platinum or premier card can take the credit line higher to even Dh100,000.

When you own a credit card, your name and contact details become marketers' property. If you don't pay attention to the fine print when you sign up, you may inadvertently agree to have your details distributed to selected 'partners' of the credit card company. You become a line of information in a database. This database is frequently sold to companies with armies of telesales personnel who will start calling you and harassing you to buy their products and services, not to mention inviting you to so called 'free stays' at luxury resorts.

"The hardest part about selling is identifying targets that have money to spend," explains Alex, a telesales consultant. "But when you know your sales target has a credit line, then it boils down to convincing them to buy. Anyone with Dh10,000 to spend is a potential customer."

Get ready to be offered once-in-a-lifetime opportunities to buy (among others) club and spa memberships, vacuum cleaners and vacations, all of which are neatly packaged with 'flexi, zero interest payment' schemes. Oh, and get ready to be approached by other credit card companies, too, who will gladly send you a new card in the mail and effectively double your credit capacity… and credit exposure. Make no mistake: If you get a credit card, everyone is going to want a piece of you.

2. TEMPTATION AHEAD

A credit card empowers you like nothing else can. But with all that money to spend – i.e., borrow – you must now prepare for the acid test nearly all new credit card owners fail: Temptation.

Besides fighting annoying telesales folk like Alex, the hardest battle you will have is the battle with yourself. Whereas you used to walk away from perfume salesgirls peddling their latest smells because you don't have cash to spare, owning a credit card will mean that you can actually buy those smells whenever you want. The temptation of "buy now, pay later" is nearly impossible to beat. Just knowing that you could walk into BurJuman and buy something will add a spring to your step and bounce to your hair. And when you're having a bad day, isn't a little retail therapy a marvellous pick-me-up?

Unfortunately, every time you give in to the tyranny of temptation, you spend money that you have not yet earned. Future income is not guaranteed income, as 24-year-old Alicia found out: In a moment of mad affection, she bought her boyfriend a Dh39,000 Tag Heuer watch for Christmas last year with her new credit card. She was counting on her January bonus to pay for it, but it never materialised. "When my company announced there would be no bonus, it felt like being punched in the stomach," says the marketer. "I am now Dh39,000 in debt on a Dh20,000 salary – and this year's Christmas shopping hasn't even started."

3. GET READY FOR DEBT

Alicia has discovered a new perspective in life, one that you will come to learn if you don't use your credit card responsibly. It is full of tears, heartbreak and sleepless nights. It's called debt. Alicia's landing was short and hard. But for most people, the journey downwards is slower, and the landing so soft, they barely realise it until it is too late.

It starts off with a couple of hundred on some make-up and coffee mornings. A year later, it snowballs into a couple of thousand, which you hope to clear off with the famed bonus. If that crucial lump sum payment is not made – or, is not enough – then it is only a matter of time before you are several thousand in debt, struggling to meet your minimum monthly repayments.

Fatima, for example, has been trying to clear her credit card debt for 12 years. Every year, her bonus of Dh45,000 goes to her credit card. But by the time Eid rolls round again, she has maxed out her Dh75,000 credit line again. Effectively, therefore, she is always at least Dh30,000 in debt, and unless she wins the Lexus raffle this Dubai Shopping Festival, it looks like things are going to stay that way.

Worst of all is that Fatima's credit card does not even give her the pleasure of spending anymore. She has not used it to buy anything nice for years. Yet, she cannot survive without it. "The only thing I use it for is stuff like insurance and paying fines," she says. "Without it, I wouldn't even be able to do that."

4. YOU'LL HAVE TO WORK HARDER, MUCH HARDER

The only antidote to debt stress is clearing the debt. And, short of winning a Mashreq Millionaire raffle or robbing a bank, the only way to clear debt is to earn more money. But how do you do that?

By working harder, of course. But even this is sometimes not enough, because it all depends on your job. If your income is not tied to your job performance, then you could work 24-hours a day for three months in a row and still be at square one. This is why Ghada, 25, left her job as a web designer to work as a salesgirl with a web hosting company. She does not like meeting people or making sales calls. She loathes everything about her job, but she knows that it is the only way she can earn more money – if she sells a lot, she earns a lot.

"I love designing websites," says Ghada. "But a fixed income did not allow me to earn enough money to pay off my credit cards. With sales, I know that if I work harder, I will earn more."

Ghada hopes to be debt-free next year so that she can go back to her old job. She has put her web designing career on hold for two years in order to buy her freedom. Are you prepared to do the same if your credit card debt becomes unmanageable?

5. GETTING OTHER LOANS IS NOW TOUGHER

The moment you sign up for a credit card, your name is added to the bank's database and could be added to Emcredit's database if the bank has signed up, which collects credit information on borrowers from financial institutions and furnishes it to them when needed. If you have a credit card debt, they will know. And this means getting other loans is going to be much tougher.

You do need other loans, you know. At the least, buying a car or a house requires borrowing money from a bank. You may also one day want to take out a loan for a business venture. But with a credit card debt and a poor history of making repayments, fewer lenders are going to approve your application: You will be rated "Special Attention".

"I had to ask my younger brother to take out a loan to a buy a car for me because my credit rating was so bad," says Rakesh, 28. "It was so embarrassing, and worst of all, I now owe him a huge favour."

6. THE DEBT COLLECTORS

Finally, if you don't manage to somehow get a grip on your plastic cash, you will have the pleasure of meeting the debt collectors – some nice, some nasty, but all interested in the same thing: Making you pay up.

Debt collectors are hired by some credit card companies to track down defaulters and harass them into paying their debt in full. Ivan, an ex-collection agent relates the plight of one of the debtors he was assigned to track down. "In his first year of owning a credit card, he had charged about Dh13,000 to it before realising that he had to throw it away," says Ivan. "But though he could get rid of the card, he couldn't get rid of his bill. Ten years later, the poor chap still hasn't managed to settle it. And, as a result of several late payment charges and finance charges, his bill has ballooned to more than Dh480,000."

The defaulter was 53 years-old when Ivan spoke to him, and very tired. Tired of being debt, tired of being hounded, tired of trying to get back in the black.

"When I mentioned bankruptcy, he didn't even seem to care," says Ivan. "His words were, 'So what? At least you'll stop calling me'." (With inputs from Aimee Greaves and Bindu Rai)

 

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