Debt will also be one of the vital greatest elements keeping other folks again financially, incessantly increase incrementally till it builds as much as a big sum that turns out unattainable to get to the bottom of.
Within the UAE, simple get entry to to credit score and emerging way of life expectancies way many citizens depend on bank cards, non-public loans, and Purchase Now, Pay Later (BNPL) choices to control spending. Whilst those equipment can be offering momentary aid, they may be able to additionally make it more difficult to look the entire image of what’s owed.
Relieving debt is more straightforward stated than accomplished, however professionals say step one is figuring out the way it builds within the first position.
How do other folks fall into debt traps?
With quite a lot of financing choices to be had, many citizens are utilising choice possible choices to ease the load of spending a great amount immediately. Those come with BNPL choices, like Tabby and Tamara, more than one bank cards, rent-to-own fashions, and salary-linked loans.
Those smaller, incessantly cut up, bills slowly begin to acquire with out other folks totally recognising how a lot they owe in general, says Alexander Varghese, gross sales director of Trade Channels at Continental Workforce.
The most typical method other folks fall into debt traps may be no longer via a unmarried, main resolution. Moderately, it’s via small selections that through the years acquire into debt that the individual might realise too overdue, added Alexey Nuzhnyy, CFO of ESAB MEA, Russia, and CIS and visiting professor of company finance at Moscow College.
“When income stability changes or unexpected expenses arise, this structure quickly becomes fragile,” Nuzhnyy stated, including that simple get entry to to bank cards, non-public loans, and way of life financing creates a “false sense of affordability”.
Early warning signs
While it is possible to fall into a debt trap without realising it, there are a few telltale signs that appear long before debt accumulates. One of the clearest, says Varghese, is using BNPL services to pay for essential expenses like fuel or groceries.
“This indicates that income is no longer sufficient to cover basic living costs,” he explained. “Having multiple BNPL plans active at the same time is another strong signal of financial stress, particularly when repayment schedules begin to overlap.”
A more fundamental red flag that Varghese pointed out that shouldn’t be ignored is when income is not enough to service existing debt. “This is more common than many realise, and it tends to worsen quickly if not addressed,” he cautioned.
Nuzhnyy, the corporate finance professor, said that another important sign that debt is building up is losing visibility over total debt, when they cannot clearly state how much they owe across all products.
When is it too late?
A simple benchmark to know if you are on the safe side is how much of your income is going towards debt repayments. A good rule of thumb is if more than 25-30 per cent of salary is being paid to service debt, then it is usually a sign that financial flexibility is shrinking and risk is increasing, Varghese said.
Another indicator is day-to-day cash flow. “If your monthly income does not comfortably cover repayments, or if you are relying on additional credit to get through routine expenses, the debt level is no longer sustainable,” the sales director added.
Steps to avoid debt
1. Track spending
2. Limit BNPL usage to one platform
3. Avoid overlapping plans
4. Keep track of repayment dates
5. Avoid stacking loans
According to the debt collection agency AW Holding, not paying off your debt can lead to significant consequences, including the freezing of bank accounts, seizure of properties, harm to credit score, and wage garnishment, a method in which creditors can legally withhold a part of your salary to pay them back.
