Debt Consolidation in UAE
Since UAE is a land of opportunities, a large number of expats migrated to the country in search of a better job with good remuneration. During their initial period (when they don’t have a fixed job), they generally opt for personal loans and credit cards to manage their expenses. However, they sometimes accumulate debt from various sources and find it really difficult to pay them. In this situation, the concept of “debt consolidation” comes to their rescue.
As the term indicates, debt consolidation is a process in which all the outstanding liabilities of a person arising from different sources (loans, credit cards, etc.) are converted into one single consolidated liability. It can be done through a management programme or a loan. This debt consolidation scheme is highly effective when a person is troubled with high interest loans (credit cards). It lowers down the overall interest rate and makes it convenient for the borrower to repay the money.
Benefits of Debt Consolidation
This debt consolidation mechanism offers a wide range of benefits to the borrower and assist him to easily discharge his existing liabilities. The major benefits are as follows:
- It becomes quite easy to look after the deadline of repayment.
- The rate of interest of the consolidated debt is much lower in comparison to individual debts.
- It helps to maintain a decent credit score to avail further loan in the future.
- It increases your disposal income.
Mainly, there are two ways of consolidating the debt which are as follows-
- Debt Consolidation Loan
It is one of the most popular and convenient methods to consolidate the debt. The person who wants to avail this facility needs to apply for a loan from a financial institution or an online lender. It is important that the amount of loan shall be equivalent to one’s total existing debt so that it can be settled in one go. The total amount of the loan is converted into EMI’s for repayment, which normally lasts for 3-5 years.
The main criteria that a bank used before sanctioning the loan is that the debt burden ratio (DBR) of the borrower shall be less than 50%. In simple words, the percentage of salary that is going to use for the EMI payment of the consolidation loan should be less than 50% of his total monthly salary. It demonstrates the financial stability of the borrower. The interest charged on the loan can be further negotiated after keeping in mind the financial condition of the borrower.
- Debt Consolidation Without Loan
Another effective way of consolidating the debt is by Debt Management Programme, which is offered by various debt consolidation agencies. This programme doesn’t involve getting a loan from the bank, but it works by coordinating with one’s existing lenders (credit card providers, banks, etc.) to reduce the rate of interest on debt. This reduced interest rate provides much needed support to the debtor in discharging his/her financial obligations.
Thus, debt consolidation is a widely used mechanism to restructure the debt in tough times. If you are troubled with various outstanding debts, you should seek legal assistance and choose the best possible solution for you.