The Expat Debt Trap

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Debt trap

Debt accumulating amongst expats in the UAE seems to be, yet again on the increase.

Moving to a new location can be an expensive process and it can be all too easy to start spending beyond your means. All too often expats live like they are on a constant holiday. Be warned – if you aren’t wary the bubble will burst, leaving you borrowing into a vicious debt trap.

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The debt owed by expats in the UAE is for a whole manner of things from car loans, to boat purchases, to credit card debt and the banks seem quite happy to grant relatively large loans and credit cards to customers with limited income. This coupled with a high level of consumerism and often poor financial literacy can be a recipe for disaster.

Are you caught in a debt trap? Here are few quick tips on how to take control of your debt:

  • First things first – Make it your priority. Work out the absolute maximum you can afford to put towards paying off your debt each month and stick to it.  Be prepared to make sacrifices. If you need to move into a smaller apartment or get a cheaper car then do it. Always remember that debt isn’t free and the interest rates are high. The sooner pay your debt off the less the debt will cost you in the long run.
  • Face reality and do not ignore the situation. Seek professional advice and map out a clear plan of action. Do not let the debt spiral out of control.
  • Know the exact value of the debt you have acquired and be completely honest about it.
  • Make a complete list of all of your debts (outstanding balances, interest rates and charges) and prioritize them in order of importance. Mortgage payments and vehicle payments are typically at the top of most lists.
  • Organize to meet with your creditors to establish all possibilities and solutions.
  • Do your own investigating into cheaper options for paying back the debt. Remember your bank may not offer the best solution so it may be worth shopping around. Make sure you shop around for the best deals. If there is an alternative loan facility you are eligible for, see if you can transfer your debt, as it could save you money.
  • Seek out cheaper accommodation, schools, and transportation. The more cut backs you can make on your outgoings the more you will be able to put towards paying off whatever debt you have.  It is likely you will have to make some sacrifices.
  • The account that is doing you the most damage is the one with the highest interest rate, and you’ll take great pleasure in paying that down first.
  • Put your credit cards away until you have completely paid off the outstanding balances. Paying for your purchases with cash instead of credit will help you.
  • Many of the banks in the UAE are extremely forthcoming with loan arrangements. A loan can help someone consolidate debt and make it far easier to manage.  Very common in the UAE is credit card debt sprawled across various accounts with different banks. A loan from one institution will enable you to clear credit card debt (often with much higher fess than a loan) whilst allowing the debt to be easily managed.
  • Be disciplined. Set a time frame for paying off your debt and stick to it. Not only will you be clearing your debt but you will be getting into a good habit of putting money aside each month so that once all of your debt is cleared you can turn the tables and begin to start saving in a disciplined manner.

Photo-Ian Westcott/Flickr

Jessica Cook_1

Jessica Cook is a well established and respected Private Client Adviser based in Dubai. Having had a diverse career, she obtained a law degree and began work for a large legal practice biased in London, where she specialized in Criminal Law and Family Law. Jessica then went on to spend 7 years working for the Financial Times in London. With a wealth of knowledge and experience behind her, Jessica now believes she has finally found her passion in the world of finance and runs a successful financial advisory practice based in the UAE

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