UAE | General
Pledge to avoid the 'vicious credit circle'
It took just 12 months for Jihad, a 26-year-old Palestinian sales manager, to stack up a debt close to Dh30,000 and since has sworn off credit cards forever.
- By Wafa Issa, Staff Reporter
- Published: 01:04 February 8, 2008
- Credit rating agencies give banks an idea on the likelihood of the potential borrower's capacity to pay back his or her loan by rating their credit history.
- Like credit rating agencies, credit bureaux assess the credit-worthiness of a borrower by getting information from member corporations. Based on a mutual benefit system, members share information in exchange to receiving information. Unlike credit rating agencies, bureaus do not
score borrowers. - Credit shield is an insurance system that can have a credit card holder's loan waived in case of death and permanent disability. For a premium, often a percentage of the loan, the card holder can avoid being burdened with the loan, or burdening others, should he or she become disabled
or die. - A credit card is a quick and pre-approved loan of a certain amount, known as the credit limit. It is different from a debit card in that its use does not withdraw money from the holder's account immediately but allows him or her to pay it gradually for an interest. A minimum monthly payment is necessary, and is usually determined by the amount spent on the card.
Dubai: It took just 12 months for Jihad, a 26-year-old Palestinian sales manager, to stack up a debt close to Dh30,000 and since has sworn off credit cards forever.
"To have a credit card was one of the worst things that ever happened to me. I am determined not to fall into that trap ever again in my life. I don't advise anybody to take credit cards - it's a vicious circle.
"I used to think that credit cards could be a good thing if they are handled smartly, but it is my conviction now that this doesn't exist - there is no smart way to use credit cards," he said.
Jihad (name changed) got two credit cards with a total limit of Dh26,000 when he opened a bank account and after one year of use accumulated Dh30,000 worth of debt, in spite of a monthly salary of Dh22,000.
"As I had to sign many papers when I opened a bank account among them were credit card applications so I did not realise that I had applied for credit cards until I received them together with my ATM-card," he said.
He managed not to use the credit cards for the first six months, but once he started using them he just could not stop, he recalls.
"I used the credit cards for both necessary things like furniture and a car rental contract," he said, as well as things he bought only "because I suddenly had the money." For example he once bought himself an entire new wardrobe worth Dh4,000 when his laundry was delayed prior to a trip.
"The really tricky thing with credit cards is that they are so easy to get. From then on it's easy come easy go," he added.
When Jihad was no longer able to keep up with the monthly payments and ignored them for a few months, he decided to take a loan to pay off his credit cards.
"After almost a year I decided that I had enough and I did not want to continue being part of this never ending process so I took a loan to settle my debt," he said.
Jihad was able to negotiate a 15 per cent reduction of his outstanding balance with his bank as he was making an all-in-one payment.
"Although it has been several months since I have paid all the money I owe and cancelled my cards, I still get a phone call from the collection department twice a day asking me to pay my debt because as I am still registered in their system as a defaulter. It is very embarrassing to keep explaining my situation over the phone in front of colleagues and friends," he said.
Know how: Definitions
Risky business: What can happen if you cannot pay back?
Let another company take on your payment: Some banks will be willing to pay off your credit card bill if you take a new account and credit card from them. You then have to pay the new company installments instead. This can be the makings of a vicious circle.
Credit rating: In the UAE credit rating doe not exist, but in other countries, this can determine your chances of getting credit cards. All your payments are kept on record, meaning if you have had trouble or are late with payments; the next time you apply for a credit card or a loan, the company will be able to look in to your record to see whether it is worth them taking the risk.
Repossessing: This is again unheard of in the UAE, but in other parts of the world, credit companies are able to take back everything you have purchased with your credit card. If the value of the items does still not cover your debt, then other items can be taken from you as well, to the extent of taking your home.
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