Couple in debt Image Credit: Supplied

Dubai: A lot of people turn to credit cards or personal loans in the hope of getting through difficult and distressing financial circumstances. Unfortunately, many of them only end up digging a deeper hole for themselves.

According to the latest statistics, personal borrowings in the country are piling up, with consumer loans alone amounting to Dh417 million in the last quarter of 2015 – that’s about Dh27 million more than the total debt racked up by UAE residents in the first quarter of last year.

This means that the average person in the UAE now owes a bank or lender some Dh41,000, according to Alp Eke, senior economist at the National Bank of Abu Dhabi (NBAD).

A separate study by research firm Strategic Analysis paints a grimmer picture, saying that the debt burden in the UAE is equivalent to  Dh348,000 ($95,000) per household  or $114 billion in total, which is approximately 100 per cent more than it cost to build the Burj Khalifa tower.

Analysts confirm that many residents in the UAE are still struggling to break free from the cycle of debt. The situation is worsened by the fact that consumers borrow money they can’t afford to repay and financial institutions collect extremely high interest rates.

Rajeev has been through this himself. Back in 2013, the expatriate from India was forced to use a credit card issued by a UAE-based lender to buy practically everything - from food, clothes to other daily essentials. The card carried a very high interest rate, but he had no other choice. He was out of job and had two children and an unemployed wife to feed.

“When I lost my job, I had to manage my family’s needs, including medical, housing rent and my children’s education [using my credit card],” he says. He thought he had everything under control then, as he was very diligent in paying the minimum dues.

Although he later found another job, Rajeev was struggling to get by and sustain his family’s needs with only a Dh5,000 monthly income.

Consequently, he missed two credit card payments in October and November 2014, and that’s when things got out of hand. As a result, his credit card dues, which carried a 3.4 per cent monthly interest, ballooned to Dh51,000 by December. About two months later, his worst fear came true: the bank threatened to file a case against him.

According to SS Raju, personal finance expert at Nexus Group, there are many more UAE residents like Rajeev who are still trying to get their heads above water and spending more than a third of their income on debt repayments.

“People tend to resort to these lenders when they find themselves needing to meet financial obligations, but are unable to apply for a bank loan because they do not meet the income criteria,” Raju says.

“However, these ‘loan sharks’ must be avoided like the plague – they can put you in a sea of endless debt, and if you’re unable to pay it back, they can file lawsuits against you.”

Minimum amount due

Another mistake most people fall into is that they only pay the minimum amount due on their monthly statement. Jazmin Sumina (name changed), who used to work for an airline in the UAE, was shocked to learn that her unpaid credit card bills had suddenly ballooned to Dh100,000.

“I don’t know how my outstanding loans reached that amount. I only owed about Dh60,000, at least. Perhaps it’s because I was only paying the minimum amount due, so the high interest rates caused my debt to soar,” she says.

And for some people, it’s the lavish lifestyle that is the root cause of all their troubles. Raju says many UAE residents are taking out excessive loans they cannot afford, and this is “increasingly putting themselves at risk of long-term debt”.

Residents are advised to steer clear of “loan sharks”, and to ensure that the repayments on borrowings don’t exceed their regular incomes. In ideal situations, debt repayments should not be more than 10 per cent of a person’s monthly salary.

“In extreme situations, debt repayment should not exceed 30 per cent of your income – the remaining 70 per cent should be kept for savings and other expenditures,” he says.


To stay out of debt, consumers should immediately get rid of their credit cards and avoid getting additional loans just to pay back their lenders. The danger of taking out another loan to repay creditors is that borrowers will just put themselves in a “never-ending cycle of debt.”

It is also advised that those with more severe cases of debt should find a way to work closely with a financial advisor to “streamline a realistic repayment plan, and then sit down with their banker to renegotiate the terms of their payment”.

“And it can’t be said enough – save for a rainy day,” says Raju. “Place your savings in a bond, somewhere it cannot be easily accessed when you are tempted to make an impulsive purchase – there are a number of safe and reliable options in the UAE. Yes, at first, this will be difficult, but with a little will power, you can teach yourself discipline.”