Some UAE residents may have overleveraged themselves for a number of reasons, not lease because of recent economic uncertainties. When financial obligations stack up, these residents may be unable to maintain regular finance repayments. This in turn can lead to negative consequences, while affecting their financing ability in the future. Debt settlement is one way to ease this burden.
Simply put, debt settlement or consolidation is a way of combining all your existing debts into a single lump sum payment. Such a consolidation may be offered by your existing bank or by a different bank that will reduce your debt by negotiating a settlement with your creditors.
With some banks, such as ADIB, debt settlement not only offers competitive profit rates but also extends associated financial services that can help you manage financing over the tenor of the new plan.
Before you are offered a debt settlement plan, the bank will first work out your Debt Burden Ratio (DBR). The UAE Central Bank requires that your DBR be capped at a maximum of 50 per cent of your income from all sources. Put another way, you can only use half your total earnings to pay down your debts.
Debt settlement is the first step towards improving an adverse financial situation. The process consolidates all your expensive finances into a single debt that simplifies the repayment process. This new debt is offered at a lower profit rate than the previous facilities and credit lines, resulting in lower monthly instalments.
Debt settlement can also help reduce financial worries. Living with multiple debts and highly paid cards or finances can be stressful. The relentless stress caused by high repayments and being on constant look out for new routes of financing can adversely impact both your credit history and your wellbeing.
Studies have repeatedly shown that having money problems can increase your stress levels and affect both your physical and mental health. Having to make just one payment can go a long way to reducing this stress and engendering peace of mind.
In conclusion, with a typical debt settlement plan, you don’t just have extra money left over for your monthly expenses, but you may even be able to save money – and live a more balanced financial life.