Borrowing money has been an essential part of life for most UAE residents. In August 2010, about 85 per cent of consumers in the country had loans. Unfortunately, debt overwhelmed some borrowers. Image Credit: Supplied

Dubai: Nearly half of residents in the UAE are still in debt, while a significant number are failing to save money, according to figures from Payfort.

The company owned by Amazon revealed in a report published this week that about five in ten people in the UAE (46.7 per cent, or approximately 4.3 million of the population) have  fallen into debt, while 12.8 per cent are actively looking for a loan.

Almost three in ten (27.8 per cent) admitted that they’re not able to save any money at all. The majority of the residents (38 per cent) do manage to set aside some funds for the rainy days, but they’re only able to save 10 per cent of their income per month.

Individual debt levels in the UAE are also the third-highest in the region, after Egypt, which topped the table with more than half (57 per cent) of its residents incurring some loans, and Saudi Arabia, where 47 per cent of the population have some form of debt.

Payfort’s “State of Payments in the Arab World” report offers up-to-date data and analysis on consumer behaviour, as well as payment trends, in the region. It is based on the study of seven key countries in the Middle East: Saudi Arabia, Egypt, Jordan, Kuwait, Lebanon, Qatar and UAE.

Analysts had said earlier that the outlook for consumers remains tough, with households expected to see incomes squeezed further during the last part of 2017 and into next year. Already, consumers are feeling the pinch from higher fuel costs, while governments in the region prepare to implement value-added tax (VAT).

“The outlook in the Middle East region remains tough, with several further squeezes on household income likely in the years ahead,” said the ICAEW in its latest economic insight.

“We expect VAT to increase the cost of living by around 2.5 per cent in 2018 and 0.5 per cent in each year from 2019 to 2022,” the report noted.

Payfort’s analysis did not specify whether there are fewer people today who are saddled with loans compared to the previous years, but new figures from the UAE Central Bank suggest a downtrend.

According to the latest data, total individual borrowing in the UAE amounted to Dh332.8 million in August this year, down by 5.8 per cent from July and 3.5 per cent from last year.

Still, the amount of loans and other forms of credit that UAE residents are trying to pay off is  surpassing the Dh280.1 million outstanding debt incurred by consumers in 2013.

As for those who are somehow able to stay on top of their finances or gain access to credit, the majority are planning to buy a house.

According to Payfort’s data, the most common large purchase that people in the UAE are saving or borrowing for is the acquisition of a house.

Starting a business is the main goal for 16 per cent of the residents, while only a small portion (7 per cent) are saving for a holiday or wedding in the future.

To avoid falling into a debt trap, here are some rules to live by:

  • Don't spend more than you make. If you earn Dh5,000 a month, ensure that your total monthly outgoings will not exceed that amount.
  • Cash is king. Whatever it is that you buy regularly — groceries, meals, petrol — pay it in cash. You might think that charging Dh100 on a credit card is harmless, but if you spend Dh100 here and there, your dues and interests could pile up.
  • Don't rotate credit card payments. Paying off your Visa with your MasterCard won't solve your problem. Eventually, your bills will catch up to you and you'll end up with three or four maxed out cards.
  • If you really have to use a card, don't spend more than 30 per cent of your credit limit.
  • Never mistake want for need. Before you take that expensive, gorgeous sofa home, decide whether you really need it.