"I am a 25 year old college graduate and my salary is just over AED15,000 per month. I currently have AED37,000 in student loans outstanding - at 5.4 per cent - and a car loan of just over AED80,000 at a high interest rate of almost ten per cent - I suppose because I had no credit history having just finished college and the only bank who would lend me the cash to buy my dream (second-hand!) Mustang was one of the larger international banks operating here in the UAE.

After all my outgoings I generally have some extra cash at the end of each month. My question is - should I pay off the student loan or put the extra money towards the car loan? Plus, any other savings tips and advice would be appreciated."

In an ideal world the best solution is to repay both loans as soon as possible. Obviously real life isn’t always this straight forward. My initial thoughts would be pay off the car loan as soon as possible as this has the higher rate of interest and keep the student loan in place.

However, as with most things it is worth assessing the situation in more detail before jumping to a conclusion. The following points should be considered to see if it’s best to repay the car loan off first. Does the lender charge any early redemption or overpayment penalties? Looking at the Moneyworks best buy tables, these range from nothing to 5%, so this needs to be checked to avoid any additional cost. This should also be double checked with the loan provider. If they do have penalties then it could make it more attractive to repay the student loan first.

What term have you taken the car loan over? If it is a relatively short period of time, then the actual amount of interest that you will have to repay will be lower, compared to the student loan. Student loans generally have a low rate of interest, but are repaid in smaller amounts over a longer period of time. The effect of this means that the actual amount repaid can be significantly higher.

Going back to the best buy tables, it shows that used car finance starts at 4.5% interest rate, so it may well be worth investigating whether you can repay the existing loan and take out another one with the preferential interest rate. That way you can look to reduce the term as well as you will be able to pay more capital back as the interest is so much lower.

Therefore it is well worth analysing both loans to work out the best way to proceed be it overpayment, repayment or indeed refinancing.

You raised an interesting point regarding your credit rating. In various other parts of the world the amount you can borrow and at what interest rate is determined by your credit rating. This is calculated by looking at a number of factors, including your past borrowing history, how much you earn, whether you have ever defaulted on a loan and if you have ever been declared bankrupt.

However, here in the UAE, while a credit reference agency has been set up, very few banks have signed up to use the service, and so it is unlikely that the rate you were offered was due to your credit rating.

If after sorting out your loans you still have some spare income at the end of the month there are many options to consider. The first thing to do is to build up a cash reserve to cover any unforeseen situations, for example a repair bill for the car or if you are an expat an urgent flight to your home country to deal with an emergency back home. I hope this never happens, but if it does you will be able to pay the costs from your cash reseve without worrying where you will find the money from.

The next thing to consider would be some form of longer term saving. The earlier you start, and the longer you can save for, obviously the more you will have to enjoy in the future. How much and where to save are an article in themselves, but briefly they should be at an amount that is affordable and should be invested according to the level of risk that you are prepared to take.

I would also suggest that you review what protection you have in place. While you may not need life insurance, what would happen if you are unable to work, due to illness or injury? This can be protected against in two ways. Firstly by having medical insurance to cover the cost of any treatment that you may require and secondly by having income protection to actually protect the salary that you are not able to earn.

As always we at Acuma welcome your questions and enquiries directly so please do not hesitate to contact us if you would like to discuss this or any other issue in more detail.