Trapped inside a credit card nightmare

GULF NEWS

By Aine Moorad, Staff Reporter
Last updated: January 24, 2009, 20:00


Thirty-six-year-old Sarah is in a dilemma.

Six years ago, Sarah, who didn't want her real name revealed, had gotten over a divorce in New Delhi and thought Dubai was the place where she could live a relaxed, stress-free life.

Since she's been in Dubai, she says the stress in her life keeps mounting. Currently diagnosed with stress related disorder, Sarah has two credit cards and owes an astounding Dh30,000 on each.

"I feel suicidal right now," she says.

She partly blames the consumer temptations here. "It has spoiled me&there is so much to do and see that often I am tempted to spend," she says.

She was also unemployed for three months and that, together with a friend conning her into a bank transfer suit, left her deeply in debt.

She says saving is the only way she can get out of this dilemma.


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"Every time I manage to save about Dh10,000, I clear off part of the debt&It is besides the minimum account every month&there is no other way out," says Sarah.

She also tries to save on grocery costs by shopping at cheaper supermarkets.

"I have stopped shopping at Carrefour and go to Union Cooperative. One kilo of sugar costs me Dh3 there, whereas the same amount costs me Dh7.50 to Dh8 in another outlet," she says.

Raha, 25, came to Dubai in 2002 from Norway. He says when he came here he needed additional money to purchase a car. That's when he got his first credit card.

The second one was purchased when he opened a bank account here. "&They offered me a credit card and this gave me extra money&you tend to spend it and think you will pay it back next year," says Raha.

By 2004, he was earning a salary of Dh3,800 and had a debt of Dh13,000.

For Raha, the feelings associated with being in debt are not happy ones "It makes one feel left out sometimes, as one cannot do what one's friends are doing or go out, as your salary goes to the credit card company," says Raha.

So how did Raha get rid of all that debt and those not so fond memories? He started prioritising.

"I restructured my spending habits." He made sure his debts were paid off before he spent his money on anything else. "Some months you struggle and some months you don't. But it's a good feeling when you have paid everything," he says.

He says people cannot stop relying on credit cards completely but believes that people should not have more credit cards than what they will be able to pay for.

"Unfortunately people tend to think that they have more disposable income than they really do, which leads to major debt and not being able to repay it," he says.

"No matter how much you want that expensive TV or that amazing new iPhone, it's not worth spending one or two years of your life paying it off. The interest rate on the credit card is what kills you," advises Raha.

Anthony Fernandes, 44, on the other hand, believes that even though being disciplined helps, people should not deny themselves worldly pleasures. "We just live one life&I say don't deny yourself, but also do not overindulge," he says.

He has two credit cards and owes approximately Dh5,000. Like the others, he believes it's fair to blame consumerism for his financial meltdown. "A large number of expats &get carried away with all the stuff that you see here," he says.

Though he doesn't follow a step-by-step guide to get out of this financial mess, he believes saving a little from time to time always helps.

"Whenever I have a little extra at the end of the month I make sure it goes into my cards," he says. "Unfortunately it's a slow process."

A faster option is winning a Dh1 million raffle, he says.

K.V. Shamsudheen, director of Barjeel Geojit Securities LLC and, also, Chairman of the Pravasi Bandhu Welfare Trust, a trust aimed at reducing suicides among expatriates, says that rising debt caused by bank loans and credit cards has led to an increasing number of suicides among expatriate Indians.

Though Shamsudheen doesn't rave about the benefits of this plastic gadget that has caused havoc in the lives of many, he does think it can be a beneficial tool if used in an appropriate manner. "It's an excellent modern tool if used in the right way," he says.

He says once people have a credit card, some rely on it to live a lavish life. And that's when they start getting into trouble. "They don't have the means and they keep spending. I don't understand," he says.

He says no credit history evaluation is carried out before a credit card is issued to people here. He agrees that a need for a credit bureau that tracks people's credit history is important.

"There were three construction workers earning an income of Dh1,000 per month. And they were provided a Dh30,000 limit on their credit cards," he says. "The result was they were unable to pay their debt. And they are suffering now."

Shamsudheen knows of another person who had a loan of Dh300,000 and a monthly interest payment of Dh9,500, but his family's total salary was only Dh8,500.

Asked what people should do when they fall behind in payments, he says: "There is no solution to that. If you take a loan you have to pay it back."

Shamsudheen believes salespeople in banks give clients an unrealistically rosy picture.

Fernandes, for instance, says, "After signing the [labour] contract I realised that basic necessities such as housing and annual airfare were not included." And it was too late to quit once he signed the contract.

Having a family to support, he felt the need to have cash reserves in store. "Once trapped, the misery just piles on," he says.

Sarah has a similar feeling. She says many credit card salespeople call when she's at work and the stressful environment prohibits her from asking them appropriate questions. And by the time she knows it, she's locked into the deal.

"Office pressures and stress make you overlook minor things," says Sarah.

Shamsudheen says people have to learn self-discipline and should consider saving early in their careers.

"If a person saves Dh1,000 every month for 30 years at a return rate of 12 per cent, that person will have Dh3.5 million by the end of 30 years," he says. He calls this the "magic of compounding".

He says that many people who come to Dubai have families back home and many of these families rely on these expatriates for financial support.

"These persons sacrifice the necessities to support their families back home and take loans without thinking about the consequences," says Shamsudheen. "If there is any possibility of taking loans from banks that will be their first option.

"When they cannot pay the bank loan they start taking loans from credit cards with higher interest rates than banks," he adds.

Sarah supports five family members in India - her parents, uncle and aunt. She says she's "silently" supporting her uncle and aunt and feels obliged to do so. "They think my dad is supporting them, but he's unable to so I have to," she says.

Sarah says she's been having sleepless nights for months.

Shamsudheen is happy to provide people with counselling and is willing to listen to their problems. There are people who come to me and cry & I am willing to offer all the help I can and will do this until the last day of my life," he says.

Making the most of your credit card

Tips provided by K.V Shamsudheen, Chairman of Pravasi Bandhu Welfare Trust

People should opt for the company that offers them the lowest interest rate. (I.5 to 3 per cent)
People should only have one credit card.
Never use a credit card to take a loan.
Do not take a loan that exceeds monthly salary. Take a loan that is in limit to your monthly salary.
Learn self-discipline: He says once people have a credit card they dream to live a certain way. They have to make sure they don’t rely on credit cards to live in a lavish way.
Pay the money before the due date. He says if people do that they will not incur any interest on their monthly instalments.