How to secure a debt-free future

An interesting aspect about debt is how you manage it. Is it helping you grow your business or allowing you to realise your dreams, while shoring up your revenue stream? If yes, then probably it is good debt. Many businesses and entrepreneurs often use this way to build on their investments and earn more than what they owe to service debt. This is how it should be. However, if servicing debt is becoming a drudgery and making you live on pay cheque to pay cheque, then it needs to be reassessed and paid off at the earliest. Easier said than done, I understand, but if you are staring at a debt trap or are already caught in one, the earlier you focus on resolving financial issues, the better it is.

Salaried class people, like you and me, often get caught in the money trap, for reasons that are emotional rather than rational. The tug of a personal loan or convenience of a credit card, to fund the expenses that otherwise wouldn’t have happened, often pushes people into debt. The economic hardship wrought by the Covid-19 crisis has further exacerbated problems for many households, which has forced people to take on more debt. And if it is through a credit card, it is all the more worrisome.

Selam B., the only earning member in a four-person household, is struggling with similar issues. “I have maxed out my credit card and still can’t make ends meet. My husband lost his job last June and I have two school going kids. I used my credit card to pay their tuition fee, hoping I will repay once he gets a job, but it is now spiraling out of control.”

In this case, Selam should talk to her husband and chalk out a plan, says Dev Raheja, a Dubai-based financial adviser. “If they allow debt to pile up at this pace, it could soon snowball into something unmanageable in a year’s time. The family should use their savings, if any, and reduce living expenses without taking on more debt. If the husband is unable to secure a job in six months, children and husband should consider relocating to their home country where living expenses will be lesser.”

If you are caught in a debt trap, or living from pay cheque to pay cheque, try these following steps to unburden yourself from debt:

Clear your credit card debt: Credit cards are the most expensive forms of unsecured loans. To put things in perspective, it will take 31 months for you to pay off credit card debt of Dh2,000 if you pay just the minimum amount of Dh100 every month. In 2.6 years, you will end up paying Dh3,099 to the credit card firm. Negotiate with your bank and get your outstanding balance restructured.

Cut your budget to necessities: Housing and schooling are the biggest expenses in the UAE. Now that the rents are down, consider relocating to areas where you can save money. If you are allowed to work remotely, consider moving to a different emirate.

Take help from friends and family: It’s another way to service debt but do remember to return the money, if you don’t want relations to go sour. More importantly, never go into debt without thinking of how and when you’ll get out of it. Think before spending and spend less than what you make for a stress-free financial life.

suneeti@khaleejtimes.com