A 2017 survey revealed that 76% had missed at least one debt repayment in the past, writes Ambareen Musa, CEO of Souqalmal.com
If you feel like you’re drowning in debt, you’re not alone.
A 2017 survey conducted by Souqalmal.com revealed that more than half of the respondents have a Debt Burden Ratio of more than 50 percent. That’s not all - 76 percent of the respondents had missed at least one debt repayment in the past.
Debt can quickly take over your financial freedom if not handled properly.
But the worst part is that many borrowers struggling with debt don’t even acknowledge that they’re in serious financial trouble, thereby living in ‘debt denial’.
The belief that they’re too deep in debt with no possible way out can often leave borrowers in limbo, a situation that can only make matters worse for them.
Therefore, the sooner you recognise that you need to fix your debt situation, the sooner can you devise a strategy to help yourself.
The Souqalmal.com team lists some of the key steps to getting out of debt for good:
Assess your debt situation: How much do you owe?
The first step is to assess how much debt you owe. Make a list of all your debts, along with interest rates, outstanding balance, minimum monthly repayments and due dates.
Then you must calculate your debt-to-income ratio or Debt Burden Ratio (DBR). This ratio shows how much of your income is spent on debt repayments every month. The UAE Central Bank limits the DBR to 50 per cent for individual borrowers, so your aim should be to bring yours within this limit.
Zero in on a repayment strategy: Which solution is best for you?
This is the most important step, and it involves finding the right approach to help you pay off your debts faster and more efficiently. Here’s a breakdown of some actionable debt payoff strategies:
Prioritise your repayments
For those dealing with multiple debts, it can be overwhelming to figure out what to tackle first – which is why you need a strategy to prioritise your debt repayments.
Two of the most recommended debt payoff strategies are debt stacking and debt snowball. While the former advocates listing your debts in descending order of interest rate and paying off the one with the highest interest rate first, the latter involves paying off the smallest debt first before moving on to the next one.
Both approaches have their advantages – Debt stacking can help you cut your interest costs substantially and debt snowball can be more motivating as it lets you check off debts from your list faster.
Rearrange your debts
There are some ways you can move around your debts to make repayments easier. You could consider opting for a balance transfer credit card to take advantage of a zero interest rate and aim to pay off most of your credit card debt within this interest-free period.
Or if you’re juggling multiple debts, you can look around for a debt consolidation loan to help combine all your debts, lower the interest rate and make repayments more manageable.
Negotiate with your lenders – If you’re unable to keep up with your repayment schedule, you must involve the lender to work out a solution that let’s you pay off your debts without ending up being classified as a defaulter.
Trust us, no one likes to be chased by debt collectors day and night. If you have access to any savings, offer to make a lump sum payment towards your debts – This will most likely get you the best deal. If not, request for a revised repayment plan that extends the loan tenure and gives you some breathing space.
Work with a debt counseling/management company
If you’re unable to successfully negotiate with the banks, consider working with a reputed debt management company who can negotiate on your behalf and help tailor a debt repayment strategy for you.
Minimise your expenses: Where can you cut back?
This is a no-brainer for anyone dealing with excessive debt. You need to trim your expenses and stick to an austere budget to be able to free up as much cash as you can to use towards settling your debts.
Maximise your earnings: How can you boost your income?
Don’t ignore the income side of things. Look for ways to increase your regular income or supplement it. Be it asking for a pay rise, looking for a job that pays better or taking on some freelance work, don’t hold back. Any extra earnings can go a long way in helping you get out of debt faster.
Track your progress: Keep going…
You can’t get rid of debt overnight. It takes time and single-minded focus. Once you’re on track with a repayment strategy in place, don’t give up midway.
Keep reviewing your progress regularly and re-strategise if your personal circumstances change. Celebrate your successes, like paying off a big credit card balance, and do whatever it takes to stay motivated.