In order for someone to properly manage their finances in the United Arab Emirates, it is crucial to reduce their expenses to the absolute minimum.
The bad news is that in the current age, credit in the market is so easy to come by in the form of credit cards and personal loans that people can often end up on the wrong path without even realising it.
Anyone who has begun to feel that they are being overwhelmed by the state of their finances may wish to begin looking for warning signs that they may be falling into a debt trap.
The definition of a debt trap is a situation in which someone holds debt in excess of 40% to 50% of their monthly salary, which can be an indication that in the long term, they may be unable to pay off their debts in full.
Many people in the UAE fall victim to the seemingly easy EMIs as well as sales and market discounts.
The important thing that people need to remember is that compulsive spending can result in finances being so overburdened that they end up falling into a debt trap.
There will always be a sale of some sort going on somewhere in the UAE, and many people are unable to control themselves and make the purchase on EMIs because it does not seem like a huge amount.
However, they can accumulate and result in cardholders having little money to use for other things.
Planning for the future is a crucial aspect of being in strong financial health and is every bit as important as being comfortable in the now.
Those who do not save anything out of their monthly income can end up in financial difficulties because they are unable to build wealth and fulfil any major financial goals such as purchasing their own home.
It is also a bad habit to fall into because it increases the likelihood of getting into debt.
Paying only the minimum amount on a monthly credit card bill in the UAE is also a warning sign that cardholders could be falling into a debt trap.
Paying the minimum amount always results in interest charges being charged on the whole amount.
Paying off the due amount entirely is always the best course of action so that any extra interest charges can be avoided entirely.
Another major sign that someone is falling into a debt trap is borrowing money from one credit card in order to pay off another.
This also results in even more debts that need to be serviced, which can again result in a debt trap.
It is also a bad idea to borrow money, even from credit cards, to pay for standard everyday expenses and can be an indication that financial problems are becoming acute.
A credit score is used by UAE banks to assess the repayment capability of someone who is applying for a loan or another credit card.
If that application is rejected, then this should be seen as a major warning sign of the arrival of a debt trap.