Money matters – Best ways to avoid debt in the UAE
Managing personal finances can be a tricky business. Especially if you are living alone, away from your homeland, without much of a support network in place. Expats in the UAE can run into financial difficulties due to the unstable nature of employment or a fluctuation in earnings from their business. Even if your position currently seems stable, it’s always worth keeping in mind that things can unravel quickly. So, it is always useful to be careful and learn about ways to avoid debt in the UAE.
Financial turmoil and debt accumulation can have a real and lasting negative effect on both mental and physical health. It’s for those reasons and also to protect your future through financial stability, that it’s always better to avoid debt in UAE. Let’s take a look at how that can be achieved.
WAYS TO AVOID DEBT IN THE UAE
Here are a few tips to avoid debt in the UAE.
DEBT MANAGEMENT
Lending money for commodities has become a way of life in many countries, including the UAE. Loans and credit cards are popular banking tools used by the masses. Manageable debt in relation to the cash in hand is not a problem. However, debt accumulation to unmanageable levels is troublesome, to say the least. For instance, lending institutes look at your Debt-Burden Ratio (DBR), and if you are nearing 50%, chances are your next loan request will be rejected.
So, what exactly is DBR? Well, it’s the ratio of the total amount you have to pay each month in lieu of credit card or loan repayment. For those living in the UAE, the legal limit is 50% of your monthly income. For example, if you are earning AED 20,000 monthly, your debt payment cannot be over AED 10,000. Ideally, you should try to keep it to a maximum of 30%.
A conservative approach when it comes to spending and finances is always advised and is one of the sound strategies to avoid getting into debt. Let’s say you encounter a tough period, you will be far better prepared to navigate that situation if you have utilised a sensible methodology with regard to your personal finances. Staying out of debt is all about making smart decisions.
BUDGETING
It’s always better to save for a rainy day! Having a budget is a brilliantly simple yet highly effective way to manage your money. When things are going smoothly, you can effectively set aside a generous portion of your income each month. The first step is ensuring you record all your essential expenses. This allows you to keep track of what you have spent and how much you can potentially save each month. You can also assign fixed amounts where possible, especially for luxury spending and entertainment. If there is an unexpected expense or a hiccup, it is best to cut down on luxury items.
Your budget will also depend on which emirate you live in. For instance, you can look at the cost of living in Dubai vs Abu Dhabi, two larger and more expensive emirates. Alternatively, you can consider the cost of living in Sharjah vs Ajman, where life essentials are cheaper.
LIFESTYLE
UAE is home to some of the biggest brands in the world. From crème de la crème restaurants to designer clothing, you can find it all here. It’s easy to get caught up in the glamour and push your money limits, especially in Dubai and Abu Dhabi. And if anything goes wrong, it spells trouble. So, as a responsible adult, you have to stick to your budget, regardless of the many temptations.
As long as you have cash in hand, it might also be a good idea to simply pay with cash and forget about the credit card. A lifestyle maintained on credit cards can lead to problems.
CUT UNNECESSARY EXPENSES
Do you need a paid app? Is it worth paying for a yearly gym or magazine subscription? Do you have the time to enjoy the gaming console? Is it time to upgrade your phone? Before buying a new product or service, do ask if it provides you with any functionality. Sadly, unwanted expenses can increase quickly even before you realise there is a problem.
BE A SMART CUSTOMER
There are plenty of credit cards and discount apps in Dubai that can help you can save a lot of money. Whether it’s monthly groceries, retail therapy or entertainment, you can find a good deal for pretty much anything. You can save significant amounts of cash that can go directly into your savings.
OPEN A SAVING ACCOUNT
You can open savings accounts and deposit a fixed amount each month. Try to find a flexible plan with a high-interest rate that can act as your emergency fund. Opening bank accounts is a useful way to avoid debt in the UAE.
MAKE SAFE INVESTMENTS
If you are unable to find a savings account with a high-interest rate, an alternative can be investing in mutual funds or gold. Typically, these are safe investments and will help strengthen your monetary situation in the long run. This is one popular way to avoid debt in the UAE that can increase your net wealth.
STAY AWAY FROM SCAMS
If it’s too good to be true, it probably is – this is a good rule to live by! Before making any investment, due diligence is critical. Often ‘get rich soon’ offers come as network marketing or pyramid schemes and are easy to identify. So, just be careful with your hard-earned money.
ASK FOR ADVICE
If you are facing challenges, it is best to seek financial advice from an expert. You can find financial literacy seminars year-round. If you are thinking about investments, call your bank and ask for guidance.
The Ministry of Community Development (MoCD) also has a free consultation plan for people who are struggling to pay or avoid debt in the UAE. You can be part of workshops and rehabilitation courses and through guidance and consultation, you can make the best of a difficult situation.
BUY CREDIT INSURANCE
As discussed, it’s close to impossible to completely avoid debt in the UAE. Therefore, it is a good idea to buy a credit shield. It can protect you against accidental death, critical illness, permanent disability, or involuntary loss of employment. When buying the insurance make sure you get complete clarity about coverage and the claim process.
TALK TO YOUR LENDERS
In case there comes a time when you cannot pay back your lenders, it is always better to negotiate with the bank rather than trying to avoid the inevitable. If given proof of inability to make the payments, the bank can present different options to ease your burden for some time. A repayment plan can help you get back on your feet.
Always remember to start paying back the debt with the highest interest rate first. Typically, credit cards have the highest interest rates.
MAKING REPAYMENTS
Another good way to avoid debt in the UAE is to keep an eye on your pending payments. If the amount is slowly mounting, it might be time to make significant changes and start repaying. You could start small by looking for a cheaper phone contract, a TV package or other privileges. Limit the number of times you eat out. It is surprising how much we spend when dining out or ordering food at home. The next step can be selling things like furniture or jewellery. If that doesn’t help, you may have to sell your car or move to a smaller place to reduce your monthly rent. It may seem like a hard choice but you have to do everything you can to avoid a debt trap.
FREQUENTLY ASKED QUESTIONS
WHAT ARE THE RULES REGARDING DEBT IN THE UAE?
We’ve put together a handy guide about UAE debt rules that answers the basic questions. For specific queries, it is recommended you consult an expert.
WHICH CREDIT CARDS ARE BEST FOR EXPATS TO SAVE MONEY VIA DEALS AND DISCOUNTS?
Many banks offer deals and discounts on their credit cards. Here is a list of the best credit cards for expats in Dubai. You can find similar offers in other emirates as well.
HOW ELSE CAN I SAVE MONEY?
Loyalty cards in Dubai are also an excellent way to save some cash. Each month we spend thousands to buy different products and services. With a little research, you can save lots of cash. Similar deals can be found in all emirates.
That concludes our list of tips to avoid debt in the UAE. Ideally, you want to take the steps mentioned above to stay clear of heavy debt. However, even if things don’t work out and the burden seems unbearable, there are ways to buy some time for yourself. Being vigilant is vital but at the same time, it’s imperative to stay calm even if you are in the eye of the storm.
Visit MyBayut to learn more about life in the UAE.
