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Easy access to credit cards, loans and that extra bit of retail therapy could lead to bad debts if you are not careful enough Image Credit: Shutterstock

How often have you received your salary for the month only to see it disappearing overnight to pay off your credit card bills, even as you are left fending off loan sharks and begging and borrowing from friends and relations just a couple of weeks into the month?

Much as you would hate to admit the fact, you are possibly in a debt trap.

Living it up

Flashy cars, shopping binges and retail therapy in its many avatars are readily available here in the UAE, with its ease of access to credit cards and loans, and trending malls and retail options offering innumerable avenues to splurge. But as the initial shine vanishes and reality sets in to show you the errors of excess, mounting bills and bad loans will take a toll on your life professionally and personally.

Trevor Reyes (name changed on request) came to Dubai almost eight years ago with the single-minded resolve to live the good life. The IT professional from the Philippines had a salary of Dh9,000 back then, of which close to 60 per cent he admits to personally spending on unwanted purchases. “Life was good back when I arrived from the Philippines, I was young, without a care in the world, and I loved this amazing new life, with party nights and shopping binges,” says the 30-year-old.

With his relatively ample salary suddenly falling short, Reyes quickly applied for a couple of credit cards on the advice of friends.

More cards, more loans

“I initially had just two credit cards, but as my spending habits spiraled out of control, I resorted to applying for more cards to fund my other cards. As my remittances decreased, my folks back home were concerned and to put their worries at rest, I resorted to applying for a couple of loans to bolster my remittances,” says Reyes. Just three years into his stay in Dubai, Reyes was saddled with bills for up to eight credit cards and mounting payments for three loans. Even though he was a good worker and moved into a slightly higher paying job, it still wasn’t enough to keep him afloat. The remittances stopped as well.

“It was a debt trap that I had no clue about how to get out of, I had zero savings, and my entire salary of Dh11,000 was being used to pay off my bills. There was mounting pressure from the banks as I started slipping on my monthly payments, and even friends from whom I had borrowed started calling to get their money back, it was a bad place to be,” recollects Reyes.

Mentor manager

Help came from an unexpected quarter, when Reyes approached his boss to request a second salary advance, just eight months into his new job. “My boss knew that I was a good worker, but was surprised with my request for the consecutive salary advances. He sat me down and asked me to tell him truthfully how I was placed financially.

“He was shocked when I told him about my situation but pacified me, telling me he could relate with my situation as he was in a similar spot as a youngster more than a decade back while working in Bahrain.” Reyes’ boss got him to enroll in a finance seminar in Dubai that set out a series of measures for him to come to grips with his unwarranted expenses.

Corrective measures

For one, the retail binge had to stop. Reyes stopped following up on sales and discount offers, the mall visits with friends trailed off and with it, the urge to spend on gadgets. Within just a couple of months, Reyes started catching up on his bills even as he started sorting out his credit card debts, one card at a time.

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Living the good life is fine but ensure you have a savings plan in place Image Credit: Shutterstock

Reyes had also managed to collect a treasure trove of gadgets and accessories during the four years that he had spent in the UAE, most of which he hardly used.

“With the help of a relative in Dubai, I set up a small yard sale at her place and managed to sell most of my unwanted purchases in just a couple of days, using the money to furnish some pending payments towards two of my three loans,” says Reyes. His remittances were also back in order, and Reyes regularly started sending home a part of his salary just under a year after the turnaround.

Savings plan

Reyes says he owes a lot to his boss for getting him to acknowledge the error of his ways and setting him on the path to financial freedom. “He was happy with the way things were turning around for me, stating that the change was also reflecting in my work,” says Reyes.

The UAE continues to enjoy the largest proportion of regular savers in the GCC. I am confident that we will continue to lead the way in this area if we strive to provide constructive options for people to stay away from bad debts and raise awareness on the importance of saving.

- Mohammed Qasim Al Ali, CEO, National Bonds

“My boss also suggested that I start looking at a savings plan of some kind, considering I would have extra money in hand after my remittance requirements and miscellaneous expenses were sorted for the month.” Good advice that Reyes duly took up. With a sum of money being directly debited from Reyes’ account on a monthly basis, an assured percentage of expected returns at the end of the term as well as cash rewards in terms of incentives, Reyes now had a supplementary source of income to look forward to besides his regular salary.

Savings instruments such as MyPlan from National Bonds provide incentives to those in danger of falling into the debt trap, offering excellent options to save for the short and long term.

“The UAE continues to enjoy the largest proportion of regular savers in the GCC,” says Mohammed Qasim Al Ali, CEO, National Bonds. “I am confident that we will continue to lead the way in this area if we strive to provide constructive options for people to stay away from bad debts and raise awareness on the importance of saving.”

With the flexibility to allow customers to decide on the amount they wish to save as well as when they would like their money to be transferred to them, savings instruments such as MyPlan from National Bonds are also helping promote a culture of savings here in the UAE.

Today, almost three years after that fateful turnaround and with his finances back in order, Reyes is planning to marry the love of his life, his fiancé in the Philippines, even as he marks out plans to invest in his first home in Manila. “It’s fun living the good life, here in Dubai but it’s critical that you know your limits,” says Reyes. “Saving from day one will ensure you are sound to meet any financial challenges.”

National Bonds offers a bouquet of savings instruments and products to meet your savings needs. For more details visit www.nationalbonds.ae