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13 April 2024

Personal finance: Good debt, bad debt in UAE


Theda Muller

It is very common in the UAE that when you arrive here and have settled in your job, you are approached by bank representatives for credit cards, personal loans and other facilities, especially if you are employed with high-graded, listed companies.

This approach is always entirely tempting if you are new, because coming from overseas there are many other processes we have to endure before we are afforded credit and so it just seems so much simpler and not easy to resist, correct?

All they tell you is just to prepare specific documentation, which is in your reach and you are good to go!
Most of the time they do not explain the actual policies and regulations and only when you are unable to manage those debt repayments, are you confronted with the ‘real deal’ and most of the time you are surprised because ‘you never knew, nobody explained this process to you…’

Protocol, please

Well I am here to tell you that you are wrong. There is protocol to follow when you afford yourself of the available credit facilities and there are many factors involved prior to making that decision to apply and succumb to that temptation.

Remember, your life is in your own hands, you dictate your destiny and if you came here to save and make money, then stick to that goal because if you see anything you want and the facilities are available in the form of plastic money, you will purchase it for sure and the bottom-line is, you probably don’t even need it, you are just giving in to temptation and developing a weak link within yourself and once you start that cycle, it is very hard to disconnect from it.

So, if you are new in the country, you have been approached to apply for credit facilities, but you really don’t need it because perhaps you can save and live on your current monthly salary then take a quick survey of your environment and your needs and if the answer to most of those questions is negative, then thank that bank representative for continuously contacting you, but inform them that at this stage, you are not interested in any credit facilities and CLOSE THE DOOR IMMEDIATELY ON THIS ISSUE AS IT DOES NOT SERVE YOU.


Here are a few tasks you should perform to reassure yourself of your final decision and I am hoping it is to decline the offerings:

1. Speak to colleagues in your immediate environment and inquire on their experiences of apply for credit facilities and the outcome. Also speak to close friends and I promise you the stories of the outcomes will not be so positive as people who cannot control their debt, normally find themselves at the end of the stick, in a bad situation.

2. The Bank Representative - What guarantees they need for any facility and what the legal aspect of those guarantees are if you find yourself unable to meet your commitments.

Let them explain fully so you totally understand the policies and relevant action that can be instituted against you once you default on your payments.

Ask him to give you a rundown of the monthly interest rates on all of their facilities, also on credit cards and loans if you are unable to meet your payments at any given time and start going into serious default, i.e. 3-5months of no payments made. Inquire about their association with Collection Agencies and what those policies are when you don’t meet your payments.

3. Your Human Resources Manager - Ask the same questions and let them relate their experiences of staff who requested Salary Letters for credit and what the majority of the outcome was at any given time.

4.  Ask around – Do your own little survey by speaking to other external parties who have no attachment to you like your grocer, read the newspaper and search these debt articles for information, ask people you continuously meet and just ask in passing, don’t make a big deal of it, when you meet anyone that you feel can give you good feedback, ask, don’t be shy because you need to get different opinions from many people so it is not just from one or two parties.

My guarantee to you is once you have sourced all of this invaluable information; you will definitely close the door on credit facilities, especially if you don’t really need it.

Good credit

Please understand I am not saying don’t approve credit for yourself, sometimes it is good to have a credit card especially when your job involves loads of travelling, because most hotels only approve this mode of payment.
However, ensure that you can afford to repay the full outstanding and due amount at the end of your cycle date, try to avoid paying the minimum because that is where the compound interest starts kicking in and you end up with high unnecessary charges.

If your company is giving you a monthly allowance for your expenses, then pay this into your facility, don’t pay the minimum and go spend the rest just because you can, because it would be extremely short-sighted of you to not be aware that at the end, it is going to cost you much more to repay.

Good debt

Debt can be a good thing, it can serve you for the needs you have and that could be furniture, things to settle in but with the understanding that you can service that debt, that you will not get into a situation where you are unable to repay your payments.

See, nobody knows what will happen tomorrow because we can plan as much as we wish but anything can happen tomorrow, the bottom of the bucket can fall out and then you need to be prepared, you need to be able to fall back onto your ‘safety net’ which is minimum 6 months’ salary that you have saved over the months in case of the unforeseen.

We all need to live in peace, go to sleep in peace and if we do not plan according to our budget and what we can afford, life will become difficult and unbearable so only you have the power to dictate the life you wish to live and it must start at the beginning, where the decision to approve credit for yourself, is well thought out, well planned and you feel inside your heart you have made the right decision because regret often comes way too late and so, be the master of your destiny and take a queue from mistakes other’s have made because it will serve you.
Don’t end up saying ‘I didn’t know’, because it is your job to know.

[Note 1:  Theda Muller is a UAE-based author of two books: Embrace Financial Freedom Volume One: 10 Proven Ways To Release Debt And Emotional Fears In Today’s Economy, and Volume Two: Releasing Fear And Bouncing Back From A Debt Crisis. She also conducts webinars and workshops on debt recovery.]

[Note 2: The views expressed are the author’s own and do not reflect in any way, the views of Emirates 24|7. Readers are advised to carry out their own due diligence before taking any decision.]