Dubai: When it comes to using credit cards, it appears that most UAE consumers have smartened up and learned to avoid at least one major blunder that can lead to mounting debt levels.
A new study on consumer behaviour in UAE found that the majority (70 per cent) of credit cardholders now ensure they pay off any outstanding balance in full every month to avoid going into the red and racking up interest charges.
The trend was different in 2013, when nearly half (42 per cent) of residents were making only the minimum payment each month, and the average household borrowing stood at $95,000 (Dh348,000).
Paying only the minimum amount due on credit card can lead consumers to a debt trap, as it doesn’t only extend the amount of time it takes to pay back the bank, it also jacks up the amount of interest charges on the plastic money. So, the more they keep up only with minimum payments, the longer it takes for people to get out of debt.
“Making only the minimum payments on your credit card opens you up to enormous interest-based expenses. Therefore, it’s highly encouraging that our most recent survey suggests that UAE residents are reaping the benefit of credit cards while still being responsible with their repayments,” said Jon Richards, CEO of yallacompare, which conducted the study.
Out of the 270 UAE residents polled for the study, only 5 per cent said they pay only the minimum payment required by their bank, while the remainder of the respondents (25 per cent) said they try to pay more than the minimum, but they tend to have a little outstanding credit card debt each month.
“Consumers have, on the whole, wised up to the benefits of staying on top of debts,” said Richards.
A few years ago, when many consumers were not too conscious about repayments, a number of borrowers ended up in jail over unpaid loans and credit card debt. According to Strategic Analysis, the debt burden in the UAE in 2013 alone was equivalent to $95,000 (Dh348,000) for every household or $114 billion in total.
Financial experts have warned that there are still some UAE residents out there who are struggling with borrowings, including car loans and personal loans, not just credit card bills. Consumer loans in the last quarter of 2015 amounted to Dh417 million, up by Dh27 million from the first quarter.
SS Raju, personal finance expert at Nexus Group said earlier that some consumers are still struggling with debt and spending more than a third of their salary on repayments, adding that part of the problem is that people fall into the trap of “loan sharks.”
“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,” he said.
“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.”
According to yallacompare, most people (78 per cent) now look at interest rates as a primary consideration when choosing a new credit card. However, a significant number (nearly 27 per cent) still have a strong preference for cards that dangle rewards such as cashback, while 27 per cent indicated a bias towards card products that offer lifestyle benefits and discounts. Most residents (57 per cent) also prefer a credit card from a local bank, rather than an international one.
