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UAE residents adopting a lavish lifestyle and taking out excessive loans they cannot afford are increasingly putting themselves at risk of long-term debt, according to the region’s financial broker, Nexus Group. As oil prices drop to the lowest rates the world has witnessed in decades, and regional businesses face cutbacks, responsible spending has become the mantra of 2016 with many of the country’s residents striving to save more and spend less. However, the privileges that many have been enjoying for years makes this lifestyle change easier said than done, say experts.
“In extreme situations, debt repayment should not exceed 30 per cent of your income – the remaining 70% should be kept for savings and other expenditures,” said SS Raju, personal finance expert at Nexus Group. “And 30% is the absolute maximum. Prudence would suggest it should be no more than 10%. However, today, we find that many residents spend a great portion of their salaries paying back existing debt.”
To protect consumers, the UAE Central Bank has specified that the Debt Burden Ratio (DBR) – the maximum percentage of an individual’s income that goes towards debt payment – should be no more than 50%. The excessive use of credit cards and personal loans is the “greatest perpetrator”, says Raju, a trend that he hopes will be curbed by the recent launch of the Al Etihad Credit Bureau, which will work towards enforcing the DBR by monitoring each individual’s cumulative debt.