The reason individuals are falling into a situation of over indebtedness is because banks at the moment don’t have enough information about their clients. A special committee reported that while banks were required to limit personal loans to Dh250,000, some were lending customers with low salaries more than 55 times 
their  monthly wage.

The lack of information with banks about the credit exposure and credit worthiness of their customers is a major cause of over-debt in Dubai.

The irony is that a credit bureau already exists. The Emirates Credit Information Company (Emcredit), the UAE’s first credit bureau was set up in 2006.

Most banks are still not sharing customer information with the national credit bureau despite rising bad loans, senior bank managers said yesterday.

Banks have delayed sharing information with the private Emcredit bureau because they say it still lacks an official mandate from 
the Central Bank.

The Central Bank prepares a negative watch list where banks can check delinquent customers and those with outstanding payments.

Under Shariah, which prevails, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips

It’s not illegal to be in debt, but if you default on it in any way you face a jail sentence. The slight upside is that once you’re able to repay the debt, the slate is wiped clean and your credit record is left unblemished.

It’s not just a question of being blacklisted for credit in the future. Someone could commence proceedings in the country where you go and your assets might then be vulnerable. Debt-related problems won’t necessarily disappear the moment you board an outbound flight.

The question of whether your debts will follow you is a complicated one and certainly one that you should look at very carefully, as well as take advice on. There are circumstances in which they could make life very
 difficult for you.

HSBC bank like many other banks here confirms that it employs debt recovery firms around the world to trace customers who have fled the UAE without paying off loans.

“There is a concept of debt recovery process and it does use in house resources and external resources,” said a HSBC official. Asked whether the bank can trace customers abroad who had failed to repay debts, it replied: “The answer is definitely yes.”

The key to dealing with mounting debt is being open and honest. Lending institutions like banks appreciate your honesty, and can often provide loan breaks, or a reduction in the interest rates to help you through this difficult time. If you show your lender that you are open and conscientious, the bank is more likely to help.

Different creditors and lenders have different rules on when accounts are sent to collections. Reviewing your credit card or loan agreement will give you some information about your creditor’s timeline.

When it comes to paying off balances, your first goal should be to pay off your highest-rate 
+nondeductible debt.

Only after the credit cards, personal loans and car loans are retired should you even consider prepaying a deductible student loan or business loan. Mortgage interest is typically the last debt you want to pay.

Among all the financial products available in the UAE, credit cards are indisputably the worst. They come with higher annual interest rates than any other form of unsecured loan. Being in debt in Dubai can be a risk to your freedom and physical well being. Do not fall into credit cards trap and do not live beyond means.

Life in the Gulf is even more challenging than we think. The amount you earn during your working life not only goes towards taking care of your regular expenses –eating, buying lifestyle items, entertainment, and so on–it also needs to meet your aspirations, such as buying a house, paying for your children’s education, marriage, retirement and others.

In a nutshell, Pay yourself first before you pay to credit cards, personal loans, and rent authorities.


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