“I overspent on my credit card and I can’t afford to pay it back”

In December, I was finally able to go home and visit my family after not seeing them for almost two years due to the pandemic.

Since I had no savings, I used my credit card to pay for everything – flights, gifts for my family, taking them out to dinner, and even paying for groceries.

I was so happy to see my family that I didn’t think about how much I was spending.

However, the first bill for my trip came in January and I was shocked to see that I had spent around Dh20,000 ($5,445), which I cannot afford to pay in one go.

I am very worried about the compound interest on the card and the amount I owe will quickly increase beyond my control.

Should I consider taking out a personal loan to pay it off immediately or are there other options I should consider? Ko, Dubai

Debt Speaker 1: Sameh Awadallah, Acting Global Head of Retail Banking at Islamic Bank Abu Dhabi

I’m sure it must have been wonderful to see your family again after so long. I hope you all had a great time together.

When it comes to your situation, the first step you should take is to speak to your bank and discuss it as soon as possible, as delaying payment further can have costly consequences.

It is also important for you to review your daily expenses and avoid any extra expenses for the time being. The more your credit card balance increases, the more it will be added to the amount you owe.

Get in touch with your bank, explain your current financial situation and let them know that you intend to pay it back. If you’re a loyal customer with a history of on-time payments, your bank is likely to work with you on just one late payment.

To start, you should immediately focus only on basic expenses and cancel your credit cards to avoid any other unplanned purchases.

Jaya Ratnani, Managing Partner at Freed Financial Services

Alternatively, taking out a personal loan is a good idea to pay off your card debt in full as they often have lower rates and longer payment terms.

You can repay the loan in affordable equivalent monthly installments by selecting a term that’s right for you.

Alternatively, shop around for a card with a balance transfer facility. Some banks in the UAE will refinance your credit card balance with other banks with preferential rates to be repaid in several easy installments.

This is also the time when you should consider having a financial safety net. It’s a good idea to try building one for unforeseen circumstances, unexpected bills, and savings for the future.

It is recommended that a good financial safety net be three to six months of your standard expenses.

By doing so, you’ll avoid stress, feel more secure, and be able to spend time with your family rather than spending too much time worrying about your finances later.

Debt 2 Panelist: Jaya Ratnani, Managing Partner at Freed Financial Services

All the ad hoc debts and unexpected expenses can eventually lead you into a crisis and hamper your financial management plans.

You seem to have landed in this situation given that you incurred several unforeseen expenses during your vacation at home.

It’s easy for people to be overcome with credit card debt, which usually comes with high interest rates.

Some people pay the minimum amount due without realizing that interest is compounded on unpaid amounts and leads to increased credit card debt.

To start, you should immediately focus only on basic expenses and cancel your credit cards to avoid any other unplanned purchases.

If you only have one credit card, the best course of action is to contact the bank and ask for a settlement plan. The bank will assess your situation and work out a payment plan based on your ability to repay.

If you have more than one credit card, it is recommended that you consolidate your debt into a single payment.

The advantage of consolidation is that you only deal with one institution, which allows you to better track the amount you owe to a single entity.

You can also opt for a personal loan from the bank where your salary is transferred. This will have a much lower interest rate compared to the credit card.

Debt 3 Panelist: Alison Soltani, Founder of Leap savvy savers

It’s been hard being apart from family for so long during the pandemic and I understand you were thrilled to see them. However, you should prioritize debt repayment and avoid this situation in the future.

The first thing to do is to stop any additional spending on the card. I then suggest that you review your budget by tracking your expenses and reviewing your card statements and receipts.

The next step is to organize your expenses into categories, such as groceries, rent, bills, and clothing. Sort your needs from your wants and eliminate unnecessary spending to free up more money to spend on debt.

You can try a no-spend challenge to motivate you to cut back on some non-essential expenses.

There’s an added benefit to finding out what you really enjoy spending money on, which will help you stay on top of your spending in the future.

Starting a side hustle could also help you pay off your debt faster. Depending on your skills, you can offer a paid service or product or sell surplus items from your home.

To help you choose an appropriate side hustle, think about what you like to do, what people would pay you, and what specialized skills or knowledge you have.

In terms of negotiating a lower interest rate, you might consider taking out a personal loan to pay off the credit card.

However, you might be tempted to start spending on the card again. It may be best to transfer the balance to a card that offers a temporary zero rate payment plan or welcome offer. Some offer six months of zero percent interest payments.

Reducing your expenses, earning extra money, and transferring your balance to a low-interest loan or card will help you pay off that debt faster, but the most important thing for you is to learn from this experience. It is worth putting money aside to avoid such situations in the future.

Once you have assessed your budget and reduced your expenses, allocate an amount each month that you can set aside to build an emergency fund to help you during unexpected financial crises.

For trips and family visits, you could set up a sinking fund. This is where you estimate how much it will cost you and divide it by the number of months you need to save for it.

For example, to save for a trip of 20,000 Dh in 10 months, you will save 2,000 Dh per month.

Put that amount aside in a savings account every month and you’ll be set for a fun, debt-free vacation with your family.

The Debt Panel is a weekly column to help readers manage their debts more effectively. If you have a question for the panel, write to [email protected]

Updated: February 16, 2022, 5:00 a.m.

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