Question: I am an expatriate with four credit cards with a combined debt of Dh22,000. I try to pay more than the minimum on each card every month, but it is not always possible and the outstanding balance keeps rising. I save about Dh1,000 per month after expenses, including paying off the credit card dues but I don't have anything to fall back upon. What's the best way to pay off the dues?

Answer: Credit cards are an easy way to secure a large amount of extra cash when you first move to a new country, and many arriving to work in the UAE have taken advantage of the good credit card deals on offer at many of the banks and financial institutions based here.

However, like yourself, people have found themselves with more than one card, and struggling to pay-off more debt than they can manage on a monthly basis.

Interest rates

On average credit cards have higher interest rates than personal loans, and if you miss a payment deadline the penalties can be high. You haven't mentioned what the interest rates are, but the cumulative interest on four credit cards is certainly going to be very high — and this is preventing you from paying off any of the actual money you have borrowed.

Consolidating your debt onto one card will lower the interest rate you have to pay, but will still leave you probably paying a high rate of interest on your borrowings.

Some credit card companies and banks offer free credit card transfers, but they are not always readily available. However, opting to do this could give you the breathing space you need, and allow you to start paying off your actual balance.

If you have a mortgage, another option is to borrow a lump sum against your property. Or, talk to your bank about a personal loan. On average personal loans offer lower interest rates and can be paid back over a longer period of time, up to 10 years in some cases, so allowing you to better manage your finances in the long-term.

Loan repayments

However, it is important to understand that after the global recession, some lenders are wary about approving personal loans, and you will have to be able to show that you have the income to cover the monthly repayments.

Most banks and financial institutions will require a salary certificate from your employer, and up to six months worth of bank statements, as part of the application process.

If you have life insurance cover, then it may be possible under the terms and agreements of the policy to borrow money against it. Although you may be tempted, it is not always advisable to cash-in your policy as you could lose out on the full value you are due to receive when it comes to the end of its term.

Also, be warned, by doing this you could forfeit a substantial sum already paid into the policy, and you will need to increase your contributing sums once you are financially stable.

Whatever you decide, there is clearly much to think about with credit cards.

Seeking advice from independent financial advisers will provide you with information on the best options available to you.

Always be ‘finance aware' and ensure that your incoming (income streams) can cover your outgoing before being tempted to take on any extra debt.

 

The writer is Business Services director Nexus Insurance Brokers LLC, one of the region's leading financial advisors. Views expressed here are the writer's own and do not necessarily reflect that of Gulf News. If you have any questions, please email to advice@gulfnews.com