A Guide to Getting Out of Debt in Dubai

Dubai might only be a temporary stopover in life for most people, but many have also created a life and a home for themselves in the country. Whether you are here just temporarily or planning to stay for as long as you can, you have most probably experienced the allure of Dubai’s lifestyle.

Many people that come here with the intention to save money but then more often than not find themselves living beyond their means and getting absorbed in everything that Dubai has to offer. Especially since banks are more than willing to give credit card on top of credit card and loan on top of loan until you find yourself drowning in debt.

This is an easy trap to fall into no matter your age, and once there, it might seem impossible to get out. Of course, everyone will then have their two cents worth of advice to offer you but how many of them have financial freedom?

SEE ALSO: Opening a Bank Account in Dubai: A Guide

Getting out of debt is a slow process and will require a lot of sacrifices, but it is possible. It is even possible for you to thrive after recovering from debt but in order to get there, you will need to work very wisely with your money.

Here are some guidelines to help you get out of debt in Dubai:

Start budgeting

You will need to sit down and realistically think about your budget. Go somewhere where you won’t be interrupted and make a list of ALL your monthly expenses in Dubai and in your home country and see how much you are spending every month. If your expenses are more than your income then you have a problem and will seriously need to start cutting back on some expenses.

Even if your expenses aren’t more than your income, we still recommend looking at where you can cut back on your costs. Things like eating at home rather than eating out, quitting the gym and going for a run in your area instead, quitting smoking and even packing in food from home can make a huge difference in your monthly expenses.

Take the extra money that you have saved and use it to pay of your debt.

If you are unsure of where to start, you can Google for a budget template and then adjust it according you your needs.

SEE ALSO: Budgeting in Dubai

Creating a budget can even become a fun family activity where you can help your children set up a budget of their own and teach them about money and how to use it responsibly.

Track your expenses

In addition to your budget you will need to start tracking your monthly expenses so that you can really see where your money is going and if your spending aligns with your budget. There are a number of budgeting apps available for you to track your spending with. Some will even allow you to share the data across a number of different devices while others allow you to insert your budget and tracks your spending against your budget.

Your budget is an ever-evolving sheet and you likely won’t get it completely right for the first month, or three. Sit at the end of each month and compare your budget and expenses. Make adjustments where necessary and then repeat it again the next month.

Managing your money is an ongoing process that requires attention and dedication.

Make a list of all your debts

It is important to make a list of all your debt so that you know exactly how much you owe to whom. In the list add all your loans, credit cards and any other debt that you might have, whether in Dubai or in your home country. Also add their interest/profit rates and the outstanding amount for each.

This process will help you take stock of where you are and plan how to pay off your debt. It is a good idea to keep this somewhere where you can refer back to it and monitor how the down payments are going.

Use the snowball effect: pay off your smallest debt first

The snowball effect is actually quite straight forward to follow, but you will need most of the steps above to implement this.

• Identify the smallest amount on your list that you owe.
• Start focussing on paying that loan off. Use all the extra money that you got from cutting back on your budget to pay this off.
• As soon as the full amount has been paid, allocate the whole amount that you use to pay monthly for it and pay it into the second smallest account that you owe.

Continue with this, each time taking the full amount that you have been paying on a debt and pay it into the next smallest account. It will soon create a snowball effect and help you pay off your debt much faster while also giving you the satisfaction of feeling like you have achieved something.

Prepare for unexpected expenses and save for the rest

Along with prioritising paying your debt first, it is important that you start building a reserve. Start saving if you know that there are big expenses coming up such as servicing your car, school fees or moving to a new apartment.

SEE ALSO: How to Manage Your Credit Card in Dubai

Also start putting money aside that are strictly for emergencies. Keep this in a savings account and make a point of it not to use the money unless it is absolutely necessary. This reserve will help you during emergencies so that you don’t need to make more debt to get out of a pickle.

Lastly, that camera, laptop or any other item that you want so badly, start saving for it and only buy it when you can pay for it in cash. Not only will you appreciate it more if you save for it, but buying it and knowing that it is truly yours and fully paid off will feel just as great.