The luxurious lifestyle emanated in Dubai is usually accompanied by financial difficulty and most people residing in the area find themselves trapped in numerous debts. Working on credit cards, personal loans, car loans, among other financial debts can soon turn out to be a difficult burden to bear. Debt consolidation can be a realistic solution where debts are grouped into one such that a person can pay a lesser cost. We also want to see under what circumstances and how debt consolidation is possible in Dubai, what advantages and disadvantages it may have, and in what step-by-step process you should even check whether it is the panacea in your financial situation.
Debt consolidation like IDMS is an economic method that presupposes taking a new loan to cover several existing debts. Rather than having to pay a number of payments to various creditors on a monthly basis, you can instead pay a single-payment, usually at a reduced-interest rate. This will make your money life easy and you may end up saving on interest expense in the long run.
The residents of Dubai can choose among some debt consolidation methods there, such as personal loans targeted at debt consolidation, balance transfer credit cards, and debt management plans with the help of the financial consultants. Both options have their strengths and weight to them, which we will focus on in this guide.
Step 1: Review your financial status
It is of vital importance to analyze your current financial position before you start thinking of debt consolidation. The first thing you need to do is make an inventory of all your debts such as credit card balances, personal loans, car loans, and any other debt you might be having. Under each debt, record the amount of debt, interest rate and the minimum monthly payment.
It is a thorough rundown that will enable you to know exactly how much you owe and how doing a consolidation can turn financially savvy. Add up the amount of money you pay monthly in terms of debt and compare the amount with your income to determine your debt to income ratio, which is a crucial point that is taken into consideration by lenders when approving a loan.
Step 2: See and fix your credit score
Your credit score is crucial when seeking the good terms of debt consolidation in Dubai. The credit reporting system in the UAE has a credit score that the Al Etihad Credit Bureau (AECB) runs on a scale of 300-900. The usual scores of more than 700 are known to be good scores and will secure you with lower interest rates and terms.
In case you have a poor credit and want to get consolidation, it is better to improve your rating prior to applying. Some of them are timely bill payment, paying off credit card balances, and not applying new credit. Don’t forget that numerous credit requests within a brief aperture may affect your rating in an adverse way, so it would be reasonable to spread credit applications.
Step 3: Research about debt consolidation routes in dubai
There are a number of operations of debt-consolidation in Dubai, which have different peculiarities:
Consolidation loans
You can get personal loans issued with the exact purpose of the debt consolidation. These loans are cheaper in interest than credit cards and enables you to consolidate the various debts into one monthly payment. The loan terms can be up to five years although this can be negotiated depending on the amount of money that is going to be loaned out and also depending on your credit worthiness and also the interest rates depend on the policies of the particular lending agent.
Transferring balance credit cards
You may also get credit cards with the low-interest minimum fee periods on new balances. Consolidating the debt with high-interest bearing credit cards can as well be done well with this option but be careful as long as the balance is paid within the promotional rate period to avoid being hit with the standard interest rate.
Debt management plans
Debt management plans that are conducted by licensed financial consultants like IDMS can be viable in case the individual has many debts and is facing the possibility of financial distress. These specialists will deal with the creditors to negotiate possibly to reduce interest rates, waive their fees or set out more affordable repayment terms. You can get your debt and the conditions rearranged by Instant debt management service (IDMS)
Step 4: Shop around and lender and loan terms
To compare deals of different financial facilities in Dubai, it is important to start with the offer of several financial institutions in regard to the loan of guaranteeing debt. IDMS can renegotiate these terms for you. Major criteria to consider are:
- Interest rates (fixed / variable)
- Loan rates and terms of payment
- Any processing charges or any hidden fees
- Penalties of early payment
- Reputation of customer care
Step 5: Lodge your loan application
After making the most appropriate selection of consolidation, compile the documentation required in order to apply. The common requirements are:
- Open Emirates ID and copy of the passport
- Budget process (salary certificate to employees or trade license to business person)
- Bank statements (mostly the last six months)
- The information of your current debts
The time frame used in the approval process differs depending on the institution but it is within the range of one to seven business days. There are also banks which have processes of pre-approval; that is before you formally apply, you could be given an indication of how eligible you are.
Step 6: Put your consolidation plan into practice
Once the loan is signed it is usually funded by the lender to directly make payments of your existing debts. Care should be taken that all the old debts are duly repaid and confirmation of zero balances should be taken by the creditors they are zero.
At this point, you will start to make single monthly payments relating to your freshly consolidated loan. Automatic payments are also a good way of making sure you do not overlook a due date, which may be very crucial especially to lift or keep your credit score.
Step 7: Financial discipline
Debt consolidation seeks financial discipline that should be sustained. The following central approaches should be useful for you:
- Budgeting & adhering to it
- Don not run into any new debts as you pay your consolidation loan
- Starting an emergency fund to avoid future use of credit
- Checking you credit report regularly to see how you progress
You can also consider downloading financial management applications or tools that will assist you to manage your expenditure and savings objectives.
Advantage of debt consolidation in Dubai
When used properly, the following are some benefits of debt consolidation:
Easy financial management
Paying just one payment as opposed to numerous debts will make it less complex and less likely to miss a payment. Financial stress is also likely to decrease dramatically, and everything will become easier to keep in order.
The possible savings in interest Potential interest savings
You may save a large amount of cash through the payback of your loan as compared to what it will cost you, in the event that you get a low-interest rate as compared to what you are currently paying on other loans. Simply a percentage-point improvement can help to save thousands of dirhams.
Higher credit score
The positive effect on your credit score will result in paying off your consolidation loan admirably on a regular basis and on schedule. Also, paying your balance on more than one credit card or other loan can strengthen your credit usage ratio also known as a significant part of the credit scoring system.
Alternative to debt consolidation
Other modes of debt relief can apply better to some people:
Debt settlement
This is where creditors are negotiated to receive a lump sum that is less than is owed. In as much as it is possible to relieve you of the debt burden, it normally impairs your credit rating and can even cause tax consequences.
Credit counseling
Financial education and the development of an individualized debt management system through the involvement of the non-profit credit counseling agencies can be implemented without acquiring a new loan.
The correct decision that is suitable to you
It is also necessary that you know a few factors that will enable you to determine whether debt consolidation is right to you:
- Your situation at this point of credit score and financial standing
- Whether you can hold to sound financial habits
- Your long world financial goals
Conclusion
Keep in mind that debt consolidation isn’t the modular product, and it is not a short cut of the basic financial problems. Debt management cannot in any case be successful without making a commitment to restructuring spending habits and sticking to responsible financial behaviors in the long-run.
