For some people, it is difficult to know or even admit that they have a problem with debt.

One thing is for sure - it is overwhelming to see mounting bills and worry that they may not be able to pay what they owe. However, most debt can be managed, if one is proactive about it.

Creating a plan to tackle debt and starting on a savings and investment plan can set you on the path towards a better financial future.

So, how do you know when you have a problem?

Start by looking out for signs that debt is getting out of hand. For instance, are you avoiding opening bills that come in the mail? Are you struggling to pay basic bills, such as utilities, credit card minimums and your mortgage?

These are signs that it is time to come up with a debt management plan. You need to take a step back to evaluate your expenses.

Here are some suggested step-by-step guidelines.

WRITE DOWN HOW MUCH DEBT YOU HAVE

At certain life stages, many people have more debt than savings. This is especially common among fresh graduates or young families, where there is only one breadwinner.

Start by making a list of everything that is owed and start paying off debt with the highest interest charge first. Consider refinancing or consolidating your debts by transferring all the outstanding balances to a package with a lower rate of interest.

REDUCE YOUR SPENDING

Draw up a list of monthly expenses. Separate them into two categories - "needs" and "wants". Identify where you are spending too much under the "wants" category and take immediate action to stop spending under that category. By spending less on things that are not needed, you can start paying down your debt quickly.

INCREASE REGULAR PAYMENTS OR MAKE A LUMP SUM REPAYMENT

For debt on big items such as your mortgage, over time, as your income grows, you can restructure your loan with your bank if you can increase the monthly repayment amount.

This means that you will be able to pay off your debt faster. This can help shorten your loan tenure and reduce overall interest payments.

GET HELP

If you still find it hard to keep up with your bills and loan repayments, credit counselling agencies can help you get a handle on your debt.

These agencies can help review your debt and income, help people set up a realistic personal budget, and assist with planning for future expenses.

Once your debt is under control, there are steps to keep it in check.

A simple measurement, called the debt-servicing ratio, assesses your financial health, and is a useful tool to help manage your finances.

To find out your total debt-servicing ratio, do the following:

•Calculate all your monthly financial obligations, including mortgage, credit cards, credit lines, car loans, renovation loans and even personal loans from friends and family.

•Calculate your regular monthly income after taxes.

•Divide your average monthly debt commitments over your monthly income.

•Move the decimal point two digits to the right to make it a percentage.

Your debt-servicing ratio should range between 10 per cent and 30 per cent of your monthly income.

How much is too much?

As a general rule of thumb, your total monthly debt commitments should not exceed 35 per cent of your gross monthly income.

For example, if you have a monthly income of $4,000, your total monthly debt, including mortgage repayment, should not exceed $1,400 ($4,000 x 0.35).

BEFORE TAKING ON A LOAN

Before taking on a loan for a car or a home, there are several factors to consider to ensure that you can manage your repayments.

Check your budget to see how much you have left for the debt repayments after meeting all your monthly expenses, borrowings and savings. Build in some allowance that your expenses will go up over time.

For example, if you have a floating-rate mortgage loan, add some buffer to your monthly repayments to cater for interest rates rising.

Also, ask yourself if you can afford to continue servicing the loan if your personal circumstances change, such as the loss of a job. Making sure you have sufficient savings to meet monthly expenses can provide peace of mind during challenging times.

SAVING AND INVESTING

With sufficient savings in the bank, it is important to start investing, so that your money can work harder for you.

Today's low interest-rate environment means consumers who hold too much cash may see their savings diminish in value over the long term as their savings may not grow as fast as the current inflation rate.

When it comes to investing, one should follow the general principles of diversification, dividend investing, compounding and time.

Diversification is important in reducing market risks and generating steady returns in the long term.

Individuals should spread their investments across different asset classes and geographies instead of placing all of their eggs in one basket.

They can also enjoy the effects of compound interest, especially by reinvesting their dividends.

Dividend investing forms an integral part of building one's wealth, and investors benefit from the snowball effect of compound interest.

By reinvesting their dividend payments into additional shares, investors can benefit the next year by also earning dividends on these reinvested shares.

Finally, it is important to invest early, as investments held over time can help smooth out the impact that volatility may have on investment holdings.

•The writer is head of personal financial services (Singapore) at United Overseas Bank.