You're chronically in debt beyond your means. You ignore calls from banks, refuse to open letters of reminders and stuff them in the bin, hoping in high heavens it would go away. But still debt hangs about you like a noose. It's not something you can simply wish away.

Individuals become mired in debt, mostly from credit cards, for a lot of reasons. In the UAE, banks are seeing up to 2,500 customers leave the country each month without paying off their credit card bills.

But you don't have to leave without settling your dues first. There are many ways you can do to pay down your loans and credit card balances. And with determination and careful planning, you will be debt-free sooner than you expect.

In only a few years, Dayna Galouzo, a workplace coach at a Dubai-based company, saw her loans and unpaid credit card bills balloon to Dh100,000. She now scrambles for ways to pay down her debts. But with her salary reaching only Dh7,000 a month, Galouzo's quest for a debt-free life looks impossible to achieve.

"I don't know how my outstanding loans reached that amount. If I remember correctly, I only owed about Dh60,000 plus, but since I wasn't so diligent in my payments, the interests charged on my loans caused my debts to soar," she says.

Galouzo is now setting aside a little over Dh2,000 a month to pay off her loans and hopes to settle everything in less than five years. However, according to financial experts' calculations, it looks like she has to do more than just pay Dh2,000 a month to keep her head above water.

Steve Gregory, director of technical services at Holborn Assets Insurance Brokers, says it would be wise to pay off loans, especially credit card bills, as fast as you can to clear your debts in a short time.

He explains that even a Dh10,000 credit card debt repaid at five per cent per month (Dh500), with interest charged at 37 per cent annually, would require 32 monthly payments to clear the card.

"If you owed Dh100,000 and repaid at five per cent per month [with the same interest], this would require payments for 12.5 years and total interest payable would amount to Dh150,571," Gregory explains.

People could be mired in several types of debt, such as secured loans for cars and mortgages and unsecured loans for rent and personal purposes. Personal loans normally command higher interest rates.

Overdraft facilities charge even higher rates and credit cards are often the most expensive of all.

1Pay off high-interest loans first.

This is why borrowers facing multiple loans need to settle credit card debt first, or the ones that carry the highest charges.

"Be aware of penalties for late payment and being overlimit in the case of overdrafts and credit cards.

Penalties are often very high in comparison to the size of the debt, so make sure you avoid them. Also, check on payment protection insurance and if you are not sure that it covers you well enough, stop paying for it and use the cost of that to reduce the outstanding balance more quickly," Gregory suggests.

2Don't stick to the minimum. Overpay your debt.

Keren Bobker, senior consultant at Holborn Assets, points out that borrowers should not just pay only the minimum amount required each month because doing so will not reduce the capital outstanding.

"So you are just prolonging the agony. The longer you take to repay a loan or debt the more interest you end up paying," she says.

For Gregory, a good trick would be to set aside monthly payments at 20 per cent of the outstanding balance or overpay all your debts by at least one month's payment. This is a safety precaution to gain yourself time and will be a good fall-back strategy in case you lose your job.

"Once spending is out of control, debt will build fast. Debt is a tragedy for those suffering under its burden. Repaying at 20 per cent of the outstanding balance a month will clear the balance in six months," he adds.

However, you may need to discuss with the bank regarding your plan to repay your loans in advance. "They will often not refund interest to you for paying off loans early. If they say they do, get it in writing from them. Car loans and mortgage loans in particular carry huge early repayment penalties in many cases," says Gregory.

3Transfer credit card balances or consolidate your loans.

If you have multiple credit cards, rising unpaid bills are certainly difficult to manage. To simplify things and cut down on payments, you can transfer balances in higher-interest credit cards to lower-interest card(s).

"Rates of interest vary from 9.7 per cent per year to more than 40 per cent per year. The lower-charging banks have the toughest terms for qualifying for a cheaper card however. You should shop around or talk with a financial advisor. Obviously, banks will not offer independent advice, since they only recommend their own products," notes Gregory.

However, Mark Hartigan, deputy chief executive officer at Nexus, warns that moving credit cards around to benefit from the best interest rates can be a short-term fix and have a detrimental effect on your credit rating, thereby reducing your chances to borrow in the future.

"This is something you should discuss with an independent financial advisor... You may be better getting a personal loan which consolidates all of your debt, but this will be based very much on your own personal situation," he added.

4 Cut down on spending and increase your income.

According to Hartigan, the best way to get rid of debt is to pull back on your outgoings and find ways to increase your incomings.

To determine how much you need to hold back and spend, you have to go through your financial documents and examine where you are financially and which areas are giving you the biggest problems.

"Print off your last three months' worth of bank statements and go through your accounts. Simply mark up the monthly incomings and outgoings... Look at where you can start saving money, which areas you can cut back on in your monthly spending to move that money into your debt," Hartigan says.

To increase your debt payments, the best solution is to work overtime or take a second job and reduce your spending to the bare essentials at the same time.

Once you've set up a budget, make sure you keep to it. Gregory suggests you may need to stop using cards completely and start paying cash for everything. "Cut back on spending, even if you have to buy a cheaper car, or take a smaller apartment. If all else fails, try to make money from part time activities if that is at all possible."

Sacrificing on life's little luxuries can also go a long way. "Do you really need that large cappuccino from the coffee shop every morning? Is paid overtime available? Can you stay at home for an extra evening each week? The small amounts will build up over time," adds Bobker.

5Negotiate with your creditors.

The key to dealing with mounting debt is being open and honest. "Lending institutions like banks appreciate your honesty, and can often provide loan breaks, or a reduction in the interest rates to help you through this difficult time. If you show your lender that you are open and conscientious, the bank is more likely to help," Hartigan points out.

6Cash out investments and savings.

Although not all financial advisers agree that this is the ultimate solution to paying down your debts, using the proceeds of your investments or savings might make a difference.

A couple of years back, Gregory recalls, he advised a client to sell his shares from the Dubai Stock Market to repay his credit cards. Although his family was not sold to the idea, the client agreed. As Gregory had expected, his client repaid his debts while the market crashed.

"But it does not make sense usually to cash in savings contracts with high surrender penalties. And insurances offer benefits which are vital to looking after you and your family in the event of death or serious illness so you should not cash those in either," he adds.

This approach may help you save a great deal of interest payments on your loans, however, Hartigan notes that this needs to be balanced with the interest you would lose from your savings. This is why you need to have a word with your financial advisor regarding this.

"You may also have to pay a number of fines on your current investments for leaving the scheme early. You need to strike a fine balance between these two and should only move forward after giving this much consideration," says Hartigan

"Often it is not to your long term benefit to cash in savings plans and penalties can apply, so advice should be taken. If you have monies on deposit that are earning you a very low rate of interest and your debts are costing you, say 10 per cent, then it makes sense to use them to reduce or pay off a debt," adds Bobker.

7When all else fails, run to your family.

They say only the ones you love are guaranteed to lend a hand when you're in deep trouble. "Perhaps a loan from a family member will be possible, but this is often a good way to cause problems in families so this won't be right for everyone. Where families have assets, secured loans carry lower interest rates may help," Gregory advises.

Is bankruptcy an option for troubled borrowers?

According to Steve Gregory at Holborn Assets, declaring bankruptcy isn't one of the available courses of action for those who may find debt repayment impossible.

"Bankruptcy laws do not exist for individuals in the Middle East. People who cannot repay their debt often land in prison. "

Assets

"Where companies go into bankruptcy, the limit of their liability may be the share capital of the company but often directors then lose their personal assets which may be taken for the debts of the company," explained Gregory.

"Bankruptcy is not a solution to debt in the Middle East. Managing debt is the solution to debt here."