I had unexpected expenses this year – expensive car and home repairs on my home property – and used my credit card to pay for them.
They took me by surprise and I had no savings to cover these costs as my salary was cut during the Covid-19 pandemic and has not yet been restored to the original amount.
Since then, I can no longer save money for emergencies.
Because I maxed out my credit card to cover these expenses, I find it hard to keep up with the payments – every month I seem to owe more than the original amount I used to pay for repairs to my car and my property.
I only paid the minimum amount because I also have to take into account daily expenses, as well as rent, utilities, food, my children’s school fees and other incidentals.
I’m afraid I’ll have to pay off this credit card for years because the interest rate is so high and I can’t afford to pay more than the minimum monthly payment.
Is there another way to quickly pay off the credit card and start saving for the future? Please advise. HS, Dubai
Debt Speaker 1: R Sivaram, Executive Vice President and Head of Retail Banking Products at Emirates NBD
A credit card is a financial tool that can help you easily manage your day-to-day payments and transactions, access short-term credit, benefit from attractive shopping offers and discount programs, and to earn rewards based on your spending.
However, if your credit card spending reaches almost the full limit, as you mentioned, monthly payments and accrued interest can increase and lead to potential financial problems if you are unable to repay in full. the unpaid amount.
Paying only the minimum amount required each month is a common practice adopted by many cardholders.
However, keep in mind that it can also lead to continued debt growth due to compound interest, higher regular payments, and the threat of falling into a debt spiral.
One thing you can do right away is talk to your bank and share all the details of your financial situation.
Based on your proactive approach, your bank will most likely be willing to review the situation and possibly consolidate your debt into a low interest installment plan on your credit card or convert it into a personal loan with a lower interest rate and longer payment. term.
Ideally, you should be looking for a low monthly repayment over a longer period, which will give you flexibility while hopefully avoiding having to borrow again.
When approaching your bank for a loan consolidation, you need to have a clear plan detailing your income and expenses – this will help you be clear about how you propose to pay it back and get out of debt.
The bank may also ask you to surrender your credit cards to prevent you from incurring further debt while you pay off the loan. If you have credit cards with another bank, you must also stop using them during this period.
It’s also important to work out a budget plan and set a monthly limit on your discretionary spending outside of essentials like groceries, utilities, tuition, and the like. Try to get into the habit of setting aside a percentage of your income as savings to help out on “rainy days”.
It is commendable that you ask for help with your situation in order to put changes in place before it is too late.
Debt 2 Panelist: Jaya Ratnani, Managing Partner at Freed Financial Services
We all have aspirations and desires for the lifestyle we want to achieve.
While not everything can be quantified in terms of money, many lifestyle decisions we make have financial implications.
This is usually constructive as it motivates us to work harder and have more ambition. However, under certain conditions, it can mislead financially by financing with excessive indebtedness that exceeds our ability to repay.
A credit card can help you manage your daily payments. However, if your spending exceeds the limits, monthly payments can lead to potential financial problems.
Regarding your situation, you should contact your bank immediately and discuss your financial situation.
The bank will assess your current situation and may develop a debt consolidation plan based on your repayment capacity.
You can avoid high interest rates on your credit card by requesting a monthly installment plan that allows you to pay off your debt in a structured way.
Your bank may consider consolidating your credit card debt into a personal loan with a lower interest rate and longer payment term. This will give you flexibility and save you from having to borrow again.
Debt 3 Panelist: Alison Soltani, Founder of Leap savvy savers
The first thing to do is to assess your income and expenses to establish your cash flow.
Write down your household income and anything you’ve spent money on over the past two or three months.
You need to figure out exactly how much disposable income you have left to spend on debt.
Then go through your list of expenses and ask yourself if there is anything you can eliminate or reduce, even temporarily.
Doing a no-spend challenge or a savings challenge can be effective in helping you figure out what expenses you can forego while maintaining your lifestyle.
The other factor to consider is your income.
You mentioned that you had a pay cut during the pandemic. Could you look for another job, retrain or consider a secondary activity?
With inflation and the rising cost of living, having a lower income will prevent you from paying off your debt. Think about how you can make yourself more valuable in your industry and aim to learn high-paying, in-demand skills.
You should also plan for debt repayment and build an emergency fund.
There are online debt repayment calculators – make sure you know the interest rate and any charges applied to the debt, then experiment with a debt repayment calculator, calculating your monthly repayment over different periods.
You also need to consider building an emergency fund, otherwise you could find yourself in the same or worse position on your debt repayment journey.
For example, you can choose to pay off your debt over 24 months rather than 18 months and simultaneously build an emergency fund.
For starters, a month’s worth of spending is imperative. An ideal emergency fund is three to six months of expenses, depending on your dependents and your lifestyle.
In addition to a strong emergency fund to cover unexpected expenses, setting up a sinking fund to pay for large anticipated expenses such as tuition, visa fees, or car insurance can help you maintain a sustainable budget.
Determine the major expenses you plan to pay over the next six to 12 months and start putting money aside each month. This helps avoid going into debt or using a credit card in the future to pay these fees.
Finally, you might consider transferring your balance to a credit card or personal loan with a lower interest rate to reduce the overall amount you’ll pay.
The extent to which this is a viable option for you will depend on how the debt affects your credit score, which is readily available to Al Etihad Credit Agency. However, if you can negotiate a lower interest rate, it could significantly reduce your debt load.
Updated: October 19, 2022, 5:00 a.m.