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Lay offs, pay cuts, unpaid leave – How to cope with debt?

With Coronavirus related lay offs and salary cuts set to impact lives, how are banks stepping up to support customers? And what steps can you take to get back on your feet?

Dubai and Abu Dhabi media offices announced the financial relief measures being rolled out by leading banks If you have an existing mortgage, car loan or personal loan, relief from repayments could just be one call away If you find yourself unable to keep up with your credit card repayments, speak to your card provider about the relief options

By: Souqalmal

The world is witnessing lockdowns at an unprecedented scale. Even in the UAE, closure of malls, travel restrictions, and calls for social distancing are bound to have a serious impact on businesses. With many businesses (in sectors like brick-and-mortar retail, dining, aviation and other services) being affected, employees are also having to cope with lay offs, salary cuts and unpaid leave.

Case A – Dubai-based expat, Martin (name changed for anonymity), just had his basic salary reduced by 50% for the next three months. While he’s confident that he’ll still be able to meet his family’s basic financial needs during this time, he’s worried about the added pressure his mortgage and car loan are going to put on his now halved income.

Case B – Another sales executive based in Abu Dhabi, Mahmoud was just allotted unpaid leave for two months. Things are not looking pretty for him – He has a family to support back home, and a personal loan and credit card balance to repay. He’ll also have to cope with the high cost of living in the UAE, since travel restrictions have made it impossible for him to temporarily move back to his home country.

Martin and Mahmoud are not the only ones – There are many others in the same boat. So what are the authorities and banks doing to help out?

Read: COVID-19 Across the UAE: Most recent updates on the UAE Government and Industry Actions

How are banks helping?

At a time like this, it is crucial that bank customers (both individuals and businesses) are reassured that banks in the country are proactively working to ease their financial burdens. Fortunately for us, that’s exactly what is happening in the UAE.

To start with, the Dubai and Abu Dhabi media offices announced the financial relief measures being rolled out by leading banks in the country. Banks too, have already started informing their customers about the measures they are taking to protect them. We’re also seeing some banks setting up dedicated email accounts and phone helplines to provide support to customers affected by the financial implications of the Covid-19 crisis.

Click here to read about all the measures banks are taking to support customers.

Read: COVID-19 – The Steepening Cost of Covid-19 and lockdowns to Economies

How can you manage your debts at a time like this?

If your income has been affected by the Covid-19 pandemic, in terms of a layoff, pay cut or unpaid leave, the first step should be to get in touch with your bank.

If you have an existing mortgage, car loan or personal loan, relief from repayments could just be one call away. Among the long list of financial relief measures announced by banks, individual borrowers can benefit in the following ways:

For borrowers who have been financially impacted by the outbreak – You can have your loan repayments deferred for up to three months. Banks will not charge any interest or fees for this repayment holiday.

For all borrowers – Dubai’s leading banks are allowing all existing borrowers to apply for a one month repayment holiday at no extra fees. Abu Dhabi’s leading banks are offering a three month repayment holiday (at a 50 percent reduction in bank charges) on new loans and credit cards.

You can also access interest free installment plans of up to six months (in some cases with zero processing fees) on grocery purchases, school fee payments, and utility bill payments made with your credit card.

Read: A mixed batch of ratings for GCC countries: S&P Global Ratings

What else can you do to stabilize your finances?

Credit cards are tempting, but don’t abuse them

You may find yourself relying on credit cards a bit too much, especially if you don’t have additional cash saved up. It may also be tempting to hoard items and put all your purchases on credit cards. But you need to be sure of your ability to repay your outstanding balance in the following month. If you aren’t able to, expensive interest charges would apply, putting additional pressure on your finances.

Don’ let your debts overrun your finances

If you find yourself unable to keep up with your credit card repayments, speak to your card provider about the relief options available to you. But make sure you keep making the minimum payment to avoid hefty penalties.

Take a long, hard look at your budget

There is no better time than now to review your budget and cut back on discretionary spending. Stick to the bare necessities and cancel all subscriptions or memberships that aren’t essential.

Tap into your emergency savings, but carefully

If you have been maintaining an emergency savings fund, you may need to tap into it now. But do not deplete it recklessly. And remember to replenish it when your financial circumstances improve.

Be flexible

Being agile at a time of crisis can be such a life-changing skill. This flexibility can come in the way of a career pivot, using your skills to get part-time or freelance work on the side, or taking an online course to enhance your skills. In other words, you must do your best to bounce back from these tough times