Debt Consolidation in the UAE

Consolidation means that various debts if they are credit card bills or loan payments, are rolled into a monthly payment. If an individual has multiple credit card accounts or loans, consolidation could be a way to simplify or lower payments. Banks, credit unions, and installment loan lenders can suggest debt consolidation loans. These various loans collect many of an individual’s debts into one loan payment. This further simplifies how many payments one has to make. These offers also could be for lower interest rates than one is currently paying. Debt consolidation is the action of taking out new credit to pay off other liabilities and consumer debts. Various debts are combined into a single, more significant piece of debt, generally with more advantageous payoff terms such as lower monthly payments and/or lower interest rates. There are different ways to group the debts in a single amount, for example:

• Credit cards: one way is to consolidate all your credit card payments into a new credit card
• Home Equity Loans: frequently, the interest for this type of loan is deductible for taxpayers who detail their deductions.
• Personal loans: are used to merge credit card liability. These loans are available through credit unions, banks, and a diversity of online creditors. They give those with less than original credit scores a chance to adjust rotating debt into a fixed monthly compensation at somewhat lower interest charges.

Almost all well-known banks in the UAE have debt consolidation services. As the name implies, this program helps you to combine all of the outstanding liabilities from various loans or outstanding dues into a single combined liability. This process has a number of distinct advantages, in addition to the ease of being able to handle all unresolved liabilities in one unified form; there are also financial advantages.

About 80% of the UAE’s population comprises expatriates who have relocated to the UAE in search of better work opportunities and remuneration than they will find in their home country. When expatriates do not have a stable career and source of revenue, they often need to take out personal loans or use credit cards to manage their expenses. Debtors are generally required by law and ethics to settle their debts in order to repay their lenders. In the worst-case situation, debt consolidation, also known as debt settlement, becomes the final solution.

Consider the following scenario: an individual has outstanding liabilities of AED 25,000/- and AED 20,000/- on two credit cards, as well as a separate personal loan of AED 150,000/-. In most cases, a different interest figure may be applied to each outstanding debt, along with a fixed installment payment schedule. When you consolidate your loan, the bank handles it as though it were a single deferred obligation and offers you lower interest and installment numbers at reasonable rates, saving you money.

There have been a lot of instances in the past wherein expatriates living in the UAE fell into vicious debt traps as a result of reckless credit card use, leaving them with no alternative but to consolidate their debt. When debtors delay payments due to financial instabilities such as work loss or medical problems, the crisis continues. As a result of the course of action, the financial company files a police report against the debtor. And if a police complaint has been filed against the debtor, there is always a ray of hope in the form of debt consolidation.

Deeper Understanding of Debt Consolidation

A typical situation that many expats face while living in the emirates is the accumulation of debt from different sources, making it very difficult for them to pay off their debts. Inconsistency in debt repayment has a negative impact on the credit score and gives the financial institution the right to sue the debtor. In this case, the claimant should contact the financial institution or lender directly to negotiate an agreement on standard terms to repay the debt. When it comes to paying off loans, debt consolidation comes into the picture.

Debt consolidation is a technique that helps debtors to get out of debt by combining several loans into a single debt that can be quickly repaid by a management program or a loan. Debt consolidation schemes are very useful in dealing with high-interest loans such as credit cards because they lower the applicable interest rate, making it easier for the consumer to pay off the debt. Debt restructuring lessens the debtor’s financial burden, making it possible for them to make ends meet during difficult financial times. Debt consolidation may be divided into two (2) categories on the basis of the framework they follow to settle the debt: –

1. Choosing for a loan to settle the debt and
2. Choosing a management program to settle the debt. The initial functioning strategy works in a parallel manner for both the ways mentioned, that is, by reducing the monthly interest pertinent over the total debt amount, which ultimately reduces the monthly payable fragment to a reasonable amount easier to manage by the debtor. We can identify advantages and disadvantages to using a personal loan to consolidate debt, such as:

 

We can explain how debt consolidation works through the following example: Person Y has two credit cards, AED 45,000 and AED 30,000 respectively, and a separate personal loan for AED 200.000. Each debt will have an interest percentage separately; instead of with a debt consolidation service, the bank will treat these debts as one and provide you with a lower interest rate, which offers significant savings.

 

Debt Consolidation Loan

People applying for a loan from a financial institution or an online lender is the most common and potentially most convenient form of debt consolidation. The loan should be the same amount as the entire debt so that it can be eliminated all at once. The total amount of the loan is broken down into easy-to-pay EMIs that the debtor will pay until the remaining debt is repaid using debt consolidation. The debt consolidation loan’s interest rate can be negotiated depending on the debtor’s actual financial condition, and the repayment payment usually ranges from three (3) to five (5) years.

Debt consolidation loans are a form of personal loan available in the UAE that is designed to assist individuals who are in debt. These loans work by combining all of the debts into a single monthly payment that will ultimately pay off the debt. A good thing about debt consolidation loans is that they combine several repayments to various creditors at varying interest rates into a single payment. Since the interest rate is reduced along with a rise in disposable income, these personalized loans lower the monthly premium. Creditors carefully examine the credit reports before deciding on a rate of interest to be charged over the loan amount. If you are unable to cover your credit card debts, your credit score is likely to suffer as a result. There is no point in taking a debt consolidation loan if the interest rate is higher than the interest rate on credit card bills.

 

Debt Consolidation Loans: Features and Advantages

The below are some of the characteristics and advantages of debt consolidation loans:

• As a result of the reduced interest rate, rates are lower;
• Increased earnings (disposable);
• Reduced payments;
• Managing effectively and
• Payments can be postponed for a period of time.

 

Criteria for Eligibility and Documentation

The following documents are needed to qualify for a debt consolidation loan.

• Passport;
• Emirates ID;
• Certificate of Salary Transfer (varies from provider to provider) and
• Salary Slips or bank statements from the previous three months.

 

Insolvency Law of UAE

The latest UAE insolvency law, the Federal Decree-Law Number 19 of 2019, has been fully implemented since January 2020. In the case of financial debt, the statute covers debtors in Dubai and other emirates from legal prosecution. In addition, the current federal insolvency law decriminalizes debtors’ financial obligations and provides a three-year repayment schedule. In Dubai, Emiratis and expats who are unable to pay their credit card payments or unpaid debts no longer face jail time. These individuals will now seek to settle their debts with the help of the UAE Government.

 

Applying for Insolvency in the UAE

In 2019, it was introduced Federal Decree-Law Number 19 on insolvency (the Decree-Law) that allows a voluntary payment process at the instance of the insolvent. This process allows individuals facing financial problems to pursue a structured payment plan by applying a court-controlled method and voluntarily filing for insolvency. The Debtor could use legal opinion and other legal options to protect their assets and reach an organized installment plan with their creditors. According to article 3 of the Decree-Law, the Debtor must provide the following documents to apply for a voluntary settlement:

• A memorandum with a brief description of the Debtor's financial situation and any data concerning his source of income, his professional, vocational, or craft status, and his liquidity plans and revenues thereof within twelve (12) months next the submission of the Application
• A declaration of the names and addresses of creditors whose debts are not compensated or are not expected to be paid by the insolvent, the quantity of each debt, the dates of maturity, and the safeties provided to the creditors.
• A detailed statement of the Debtor's movable and immovable possessions inside and outside the State and the estimated value of each one.
• The resources are necessary to support the Debtor, his family, and any dependent.
• A declaration of any legal or judicial proceeding or actions taken against the Debtor.
• A declaration by the Debtor that he is facing recent or anticipated financial problems
• The Debtor's suggestions to settle his financial obligations
• The Debtor's proposal of an expert to undertake the procedure in agreement with the provisions of this Decree-Law
• A declaration of the disclosure of financial transfers outside the State that took place during the latter twelve (12) months

In the event that the Debtor is unable to give any of these documents, he must state the reasons in his Application. Furthermore, if the Court considers that the documents submitted are not enough, it may grant the Debtor a time limit for submitting additional forms. The Court will estimate the expertise charges and the expected costs for the financial settlement proceedings and inform the Debtor thereof no later than the day following the submission of the Application. After, the Insolvent must deposit with the Court’s treasury a cash quantity or bank security on the date resolute by the Court to cover the expertise fees and the expenses projected to be acquired for the financial settlement proceedings. On the other hand, related to deciding on the Application, the Court must decide on the request without notice or pleading within a period, not more than five (5) working days from the date of submitting the request that satisfies its conditions. If the Court admits the Application, it shall rule to open the proceedings to settle financial duties.

According to the Decree-Law, the Expert must prepare the Plan in collaboration with the Debtor, afford the creditors with a copy and deliver a copy with the Court within twenty-two (22) working days from the date of the Court’s result to instruct the Expert to formulate the Strategy. The Court may approve the delay of the Plan deposit period if the need arises. The Expert must have with the Debtor and creditors to one or more meetings, at a specified place and date, to deliberate the Plan. The first meeting must be apprehended within a period not more than ten (10) working days from the date of giving creditors a copy of the Strategy. The Debtor and creditor must attend the meeting in person or through their representative. The proposed period for the Application of the Plan may not surpass three years from the date of its approval by the Court. Said period might be prolonged subject to the approval of a majority of creditors who own two-thirds of the debts that have not been paid in accordance with the Plan.

On the stage of implementation, the Expert must supervise the Plan, and he will inform the Court of any failure to implement it. Furthermore, the Expert must sell the Debtor’s property decided to be sold in the Strategy at the best price obtained. The incomes of the sale or any income arising from the implementation of the Strategy must be placed in the Court’s treasury. To finish, the Court must agree to terminate the Debtor’s financial settlement proceeding in any of the following situations:

• If the Court discovers that the Debtor's financial responsibilities cannot be settled.
• If the Application of the Plan is not possible due to the Debtor's Cessation of Compensation of any of his sum unpaid on the maturity date thereof, for more than fifty (50) successive working days as a result of his incapacity to pay these debts.
• If the Debtor desires the Court to terminate the Application of the Plan before the settlement of the financial responsibilities with the creditors.
• If the period stated for the Application of the Plan ceased without being able to complete the payment of the financial obligations of the Debtor.
• If the Debtor fails to implement the Strategy.