Know the Way Out of the Money Trap
Say you are now in big trouble and you have no idea how you can settle your debts. First you have to breathe, then open all your financial accounts and check what the experts have to say.
Know the rules
Did you know that banks and financial institutions in the UAE are bound by Central Bank (CB) regulations on the amount that can be loaned and interest rates that can be imposed? This means, they cannot lend people with a sum of money they cannot repay, based on their salaries.
For an instance, monthly loan payment should not exceed 50 percent of the salary, said Gulf Law’s Atty. Barney Almazar. Debtor can file complaints at the CB if the bank or lending institution violated rules or charged too much interest.
“Banks and financial institutions are under authority of the Central Bank. If the banks did a mistake in lending too much to the debtor, they should help the debtors get out of that situation. That’s when the CB enters the picture,” Almazar said.
He further explained: “CB will not pay off the loan but will mediate so that the bank will work with the debtor for possible settlement.”
Almazar said the debtor has the burden of proving to CB that all remedies have been exhausted. “The debtor would need to show CB that he had tried to talk to his bank,” he said.
Consolidate your debts
Another way out is debt consolidation where all loans are put together such that the debtor can pay in a single bank at a lower interest rate.
“The idea is to convert the high-interest rate liabilities into a lower-interest rate payment. This will reduce the monthly payments of an individual and also create a platform for them to get out of debts completely over a period of time,” said Dhiraj Bhatia, managing director at Express Debt Management Consultancy.
Bhatia said debt consolidation, which entails a long-term solution to a person’s woes covering up to 48 months of continuous debt service, has proven to be successful in getting people out of the cycle. “We’ve been doing it here. We’ve helped quite a lot of people. It’s a matter of coming up with a strategy,” he said.
Preeti Bhambri, founder of moneycamel.com, a price comparison website, has said debt consolidation is the right approach towards reducing financial obligations as it takes over an individual’s existing loans, consolidating them into a single loan.
“This usually results in lower interest rate payments. The loans and credit cards are then closed by the customer leaving them with only one loan to pay,” she said.