The plastic debt trap

American Express, Mastercard or Visa: credit cards make buying stuff very easy – as long as you can pay for it later.

Falling behind on payments or getting a loan to cover your debt can be the start of a downward spiral and never ending debt.

Living on credit is widespread in the UAE with easy access to credit cards from all major banks. Gulf News reports on spending like it is going out of fashion and ignoring debt.

Most of us carry plastic instead of cash. It is an easy way of paying for groceries, airline tickets or a meal.

Although it may seem easier at the time and you may think 'what the heck, I'll just pay for it next month' it can be a shock to receive that monthly credit card bill. If a customer regularly falls behind payments the holder's card will be blocked so they can no longer use it.

"This can be temporary and will be unblocked once payments are stable, other times the card can be blocked permanently," said RJ a credit collector from a global bank. "If a customer has a really bad payment record, the card is blocked until all payments are complete and the card is then cancelled."

A bank can take more drastic measures. "If the credit card is issued by the same bank that the customer also has his salary transferred to, we have the right to take payments directly from that account," explains AG, manager of a credit department in a local bank.

"If the card holder does not have an account with us, we can contact the bank that does hold their account and they can either inform the account holder or in extreme cases they can contact the Central Bank which will then take the matter into their own hands."

On occasions when a customer is legitimately struggling with payments, the credit department and card holder will work out monthly payments, otherwise legal advocates will be involved.

"The lawyer of the bank will give the customer a minimum time in which he/she must clear all debts," said AG. "If the payments are still not met it can go to court and from there the card holder may have to pay the amount within a certain amount of time, they may go back to paying monthly installments and they may even spend time in prison."

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.

Have your say
How many credit cards do you own? How have hidden charges impacted you? Tell us at letter2editor@gulfnews.com

I had four cards, I closed two of them with a loan, now I am about to cover up the other two with one big card. Cards are not good, they're a bad habit. Can't live with them, can't live without them. They're just like a bad friend who helps you now and kills you later.
A.H.
Dubai,UAE
Posted: February 08, 2008, 16:43

I have multiple credit cards. I haven?t faced any issue till now. Mostly I check the statement online many times a month in addition to verify the monthly statements. Any doubtful transactions are cleared with the bank immediately. If not resolved within a reasonable time, it?s taken up with higher authorities. I choose to use the cards which have offers or discounts or promotions for period. I make sure that all the payments are cleared off at the earliest if not during the free credit period. A sensible use of a card is always beneficial.
Bejoy
Dubai,UAE
Posted: February 08, 2008, 16:33

We take cards by choice and use it by choice. We need to be responsible for our actions. Cards MUST be used for convenience and not for borrowing! Avoid taking cash advances and remember to pay up on time. It is a good travel companion, plus benefits too!
Vish
Sharjah,UAE
Posted: February 08, 2008, 16:03

If you know what you spend, you can pay, then there is no hassle. A card is the easiest way to carry money around and once you know you've lost it you can cancel the card which can be retained again from the bank, but if you lose your wallet filled with money you go crazy.
Alqab
Dubai,UAE
Posted: February 08, 2008, 15:52

I rely on cash or a debit card.
Dipak
Dubai,UAE
Posted: February 08, 2008, 11:50

I own a credit card. Initially I took the credit card with a small credit limit even though I have the eligibility to get a much higher amount.
Raju
Abu Dhabi,UAE
Posted: February 08, 2008, 11:03

I have had a credit card for the past nine years and I have not experienced problems. Teaching oneself the possible dangers of irresponsible use of credit cards is the first step towards avoiding debts.
Rajesh
Dubai,UAE
Posted: February 08, 2008, 10:53

I have a gold credit card and my bank charged me twice this year for the annual fee. When I complained, I got very unsatisfying answers.
Mir
Abu Dhabi,UAE
Posted: February 08, 2008, 10:48

My kids had to quit school because of our credit card debts. I don't know what to do.
From a reader
Dubai,UAE
Posted: February 08, 2008, 10:40