UAE consumers urged not to spend more than 30% of income on debt repayments

To expatriates who move to the UAE in the hope of earning a tax-free salary in the sunshine, a life in Dubai or Abu Dhabi appears at first glance to offer a way out of financial difficulties.

But with high living costs and the offer of an extravagant lifestyle, thousands of residents find that their original plans for saving during their time in the UAE quickly evaporate.

According to a survey by the research firm Strategic Analysis, average consumer debt in 2013 in the UAE reached US$95,000 per household, or $114 billion in total.

It found that nearly half (48 per cent) of the consumers polled in the UAE said that their monthly income was not enough to cover their repayment obligations.

Moreover, 60 per cent of respondents said that they spent more than a quarter of their salaries each month on paying back debts they had racked up in the UAE.

The situation has become so dire that after the global financial crisis, the UAE Central Bank passed a rule to specify that when taking out a loan the maximum percentage of an individual’s income that should go towards debt payment – the debt burden ratio (DBR) – should be no more than 50 per cent.

But with thousands of residents stuck attempting to pay back spiralling debts on credit cards or to loan sharks, the fin­ancial services broker Nexus Group has launched its own campaign attempting to persuade consumers to take a more realistic approach to paying back debts.

Nexus, set up in 2006 through a management buyout of the Zurich-tied agency in the Middle East, says that customers looking to pay back personal debts should stop existing credit cards and ensure that additional loans are not taken out to pay back liabilities – which could potentially lead to a never-ending cycle of debt.

It also recommends sitting down with lenders to come up with a realistic repayment plan to renegotiate the terms of their payment.

“In extreme situations, debt repayment should not exceed 30 per cent of your income – the remaining 70 per cent should be kept for savings and other expenditures,” said SS Raju, the sales director at Nexus Group. “And 30 per cent is the absolute maximum. Prudence would suggest it should be no more than 10 per cent.

“People tend to resort to [private] lenders when they find themselves needing to meet financial obligations, but are unable to apply for a bank loan because they do not meet the income criteria,” Mr Raju added. “However, these ‘loan sharks’ must be avoided like the plague – they can put you in a sea of endless debt, and if you’re unable to pay it back, they can file lawsuits against you.”

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