“Is it worth consolidating my debts a second time?” “

I have juggled a few debts over the past two years and now they are starting to catch up with me.

I took out a personal loan two years ago to pay off my three credit cards. I paid them, but since the start of the Covid-19 pandemic my pay has been cut and I’m relying on my credit cards to get through the month financially.

I have now brought them to their limits – one is 10,000 Dh and the other two are 15,000 Dh. I also always repay the personal loan, which is a little over 1000 Dh in monthly installments.

My biggest problem is that I take money off the cards every month to pay the minimum amount owed to them, so that the balances don’t go down.

Would you suggest that I restructure my debts to pay off the personal loan and credit cards all at once and start over with a new personal loan? I don’t know what to do and I’m afraid I’ll never get out of debt and start saving. BK, Dubai

Debt Panelist 1: Steve Cronin, Founder of DeadSimpleSaving.com

You are trapped in a debt spiral of building up card balances, paying the minimum on them by increasing the balances, and then consolidating them with a personal loan.

Carrying cash on credit cards should be avoided except in extreme emergencies. As you have seen, there is a charge for withdrawing the money and then an immediate increase in the balance and interest on that balance. No wonder you’ve reached your limits yet.

It just saves you time, but it’s no way to live. You are rightly concerned that you will never save or have anything to show for your hard work if you continue this way.

You also don’t have a spare buffer to ensure your resilience – losing your job, suffering another pay cut, or facing a big hospital bill at home could get you in real trouble.

You must resolve to radically change your life and your approach to debt. It will be painful until your debt is reduced and the job market improves. However, it will get you back on track for a financially secure future.

First, get a debt consolidation loan (again). Prepare a summary of your debts, income, monthly payments and other expenses. Check with your bank and even other banks to find the best interest rate.

Understand the effect of extending the term of your loan, as it can reduce your monthly payments to a more sustainable level, even if you take longer to pay it off. Remember that your first task is to overcome this period of post-Covid uncertainty.

The consolidation loan will give you a bit of a break, but this time around, it will ensure that you don’t accumulate your card debt again. You need to do everything you can to increase your income and reduce your expenses.

Is there additional work that you or your family members can do? Become creative and resourceful. Can you reduce your premises, send your family home, and reduce your phone, food and travel expenses? Set a strict budget for each category per month and stick to it.

If you must use a credit card, pay it off immediately in full. You have to reconnect spending and paying, almost as if it were a debit card. Living with your limited means, probably throughout 2022, will give you the best chance for a better life.

Panelist on Debt 2: Philip King, Head of Retail Banking at Islamic Bank of Abu Dhabi

I am sorry to hear that you are in this situation. It is important to know that you are not alone in facing this problem, so asking for help is the first step in regaining control.

A debt restructuring plan can be a good solution by consolidating your loan and credit cards into one monthly payment, which some people find much easier to manage than dealing with multiple bills.

It is essential to keep all your expenses and debt repayments under control, and to keep the total of these less than your income so that your total debt can go down each month.

Credit card cash advances are the most expensive way to use your credit card because you are charged large transaction fees, while the interest on cash advances is higher than on credit card purchases. standard credit.

Carol Glynn, Founder of Conscious Finance Coaching

If you decide to try to pay off each debt individually, it’s best to rank them from highest to lowest interest rate, which is often referred to as “APR” or annual percentage rate. Pay the highest on the list first until it disappears completely, then pay each in that order.

So, for example, paying off a credit card with an APR of 39% until it’s zero, then paying off a card with an APR of 29% afterwards can save you significant amounts of money, compared to paying. the same amount each month on all cards.

It will also help you pay off your debts faster. However, you will also need to make the minimum payments on the other cards to avoid the fees.

To help you make an informed decision about whether to take another personal loan, try to understand the monthly payment you would pay if you bundled all four debts into one and compare it to the payments you make each month in all of the products.

Then you can determine if it will really help you reduce your debt over time.

Panelist 3: Carol Glynn, founder of Conscious Finance Coaching

It’s a tough situation you find yourself in, but it’s clear you’ve been doing your best to meet the minimum repayments. It shows responsibility and willingness to resolve your situation.

However, taking cash advances on credit cards is the most expensive way to use them because you are charged large transaction fees, while the interest on cash advances is higher than on credit card purchases. standard credit.

Plus, interest is usually accrued from the date of the transaction, making it even more expensive. While well-intentioned, this approach will make your balance even more difficult in the long run. I suggest you stop this practice and find other ways to fund your minimum payment requirements.

I would recommend applying for a consolidation loan from your bank. Shop around to find the best interest rate available. Once you get the money, pay off all your debts and then cancel your credit cards. This will reduce the risk of increasing your credit card debt again.

Can you reduce your expenses in any way? Print your credit card and bank account statements and review them in detail. Is there a possibility of reducing expenses?

Common ways to save include canceling subscriptions, reducing your use of taxis, purchasing groceries at cheaper supermarkets, reducing restaurant meals and food deliveries, and socializing less for hours. a period of time. While the savings may not seem like much, every dirham you can reduce will help get you one step closer to paying off your debt.

Many companies are reporting they are returning to pre-Covid activity levels. Have you discussed the reinstatement of your old salary with your employer? I would suggest discussing this with your manager as it will help you resolve your debt situation faster.

As soon as you are able to meet your monthly debt, be sure to also set aside an amount each month for an emergency fund. This will give you some financial security and prevent you from falling back into debt.

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

Update: November 17, 2021, 5:30 a.m.

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