If your finances are in a mess, now is the time to take control. Sit down and work out exactly how much you owe and who you owe it to. Be honest or you’ll only store up more problems for the future. If your debt repayments take more than 20 per cent of your net monthly income you are entering a danger zone and must take steps to cut back. Writing down your incoming money and outgoing expenses is a great way to organise your finances and will help you see exactly where your money is going. When you start looking at your spending habits, you might be surprised by how much money you spend on small items that you could easily live without.

If you’re in a hole, the first step is to stop digging, see if you can stop any non-essential spending. If you have a major problem with credit cards, cut them up. If you’re not so bad with credit cards, at least put them away and don’t buy stuff online for one month. What’s essential? Obviously your bills, housing, auto, gas, groceries… Non-essential? Clothing, CDs, DVDs, books, magazines, gadgets.

Also try to switch to a cheaper loan or credit card and try different providers. You’ll probably be able to find a credit card or loan with a better rate than you’re paying now – particularly for transferred balances on cards (watch out for balance transfer fees). But remember that these special offer rates will rise considerably after an initial interest-free period – make a note in your diary to change deals again. Then start making regular payments to your creditors, even if you can only pay them a small amount. If your creditors see that you are committed to sorting out your debt, they will give you some leeway while you figure out your long term repayment strategy.

The most important factor when choosing to manage your personal finances effectively is time. A greater time investment will almost always result in a greater financial return.

Therefore the sooner you start to manage your finances, the greater return and financial ease you will feel in the future. Many people fail to plan ahead, which results in struggling to juggle finances at a later point in life.

Money management should focus on four primary questions:

1.       What financial goals would you like to achieve?

2.       When can you expect to achieve them?

3.       What finances do you currently have?

4.       What level of risk would you make to achieve these targets?

Choosing somewhere to live is an essential in everybody’s lives, and therefore, buying a house will be the biggest financial purchase that people will make. The financial investment into a home will affect all your other finances.

Making big decisions on your lifestyle will affect your financial goals. If you consider a luxury holiday to be one of life’s essentials, you will have less money left over for savings and investments.

When do you want to retire? What expenses do you currently have? Deciding what your priorities are will help to determine what money you will have left.

It is worth assessing your current liabilities, as these expenditures and assets could be reduced or sold and free up money for the future.

Calculate how much spare money you have so that you can form an investment plan. Investments can vary dramatically. Some are high risk for higher reward or loss, and some are low risk for a steady growth on investment. It’s up to the individual to decide what level of risk you are prepared to make.

Once these considerations have been made and your plan is in places, it’s important to assess the decisions you’ve made and how they affect you on a day to day basis. You plan may be too restrictive, leaving you with not enough money to live on, or perhaps you could make greater short term sacrifices to benefit you in the long term.

A small amount of time spent on your current finances can be highly rewarding for your future.

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

‘Deliberately Misled’

The Office of Fair Trading (OFT) is taking action against over a dozen of debt management businesses online repayment plans that it thinks are deliberately misleading consumers by using web addresses similar to non-profit organisations.

The OFT believes many consumers have been mislead to believing their advice comes from non-profit making sites, and has therefore written to 13 companies who run between them 27 websites, telling them to shut them down.

If the businesses do not comply to the letter, the OFT says they will lost their consumer credit licences, and could thereafter face prosecution.

Ray Watson, director of credit at the OFT said: “there is a danger that with increasing unemployment, more people could run into financial difficulty and we are concerned that at the point where they are most vulnerable and seeking advice, they are being deliberately misled by people who are trying to gain a commercial advantage from them.

“We believe they are misleading consumers by holding themselves out as free advice agencies such as Citizens Advice, the Consumer Credit Counselling Service, the Money Advice Trust and Advice UK.”

OFT Taking Action

The regulator has not named any names, but Citizens Advice has admitted that it has been worried that something along these lines would happen for a while.

“We are very pleased the OFT is now taking action,” were the words of the director of policy at Citizens Advice, Teresa Perchard.

“For several years now, we have been getting reports from people approaching the CAB who have been worried about sites and telephone calls they have had from people operating advice sites who have names very similar to ours. The action should mean that we see an end to that,” she continued.

As debt among the general population grows, so will the number of businesses that offer advice and solutions.

Don’t Be So Trusting, Do Your Research First

Even now, there are numerous legal debt management companies advertising online who have consumer credit licences and stick by the OFTs guidance. Many of these companies do charge for their advice, which is within their rights.

However, the Money Advice Trust has said that it should be made clear which companies charge for their advice, and that consumers should be careful and do some research before enlisting help.

“If people aren’t sure if the advice really is free and independent, they should look carefully at the website. An easy way is to look at the ‘About Us’ section to find out who funds it and who is behind it,” advises Money Advice Trust’s Joanna Elson.

What Do You Think?

Have you been caught out by one of these sites?  Do you have any advice on how to tell a good debt management site from a bad one? Leave your comments here.

Brussels has expressed its reservations about the restructuring package put forward by the government to save troubled mortgage lender Northern Rock, including fears that state aid is likely to drag on for too long.

The mortgage lender adopted a business plan allowing it to pay off a £26bn Bank of England loan within three years. It was also ordered to halve its mortgage book by encouraging borrowers to switch to other lenders.

The bank has a three-year guarantee that any savings deposited with it will be backed by the government.

The European Commission’s first assessment of the plan, set out in the European Unions official journal, sys it “doubts whether the size and duration of this down-sizing are sufficient to avoid undue distortions…[or] that… a deeper and more rapid downsizing could not be implemented”.

The regulator has particular concerns that the restructuring plan may run for an unnecessarily long period, that the state aid could have been more limited and that more could be done to compensate rivals over distortions to competition.

Lawyers have said that the commission could order the aid to be repaid if it was found to have been given illegally, but the decision on the rescue would be made in the second half of this year.

The chancellor Alistair Darling is said to be “pretty relaxed” about the commission’s assessment of the rescue plan. How relaxed he will remain is debatable as the EU journal does set out significant concerns about its compatibility with EU state aid rules.

Mr Darling’s officials were quick to maintain that the assessment came as no surprise and was simply part of a standard Brussels procedure when launching a state aid enquiry.

The proposed rescue operation was discussed at every stage with Neelie Kroes, the competition commissioner, and her officials before it was put into action insist the Treasury. Northern Rock was taken into state ownership in February.

Publication in the Official List formally triggers a month-long period in which business rivals and other interested parties can submit comments on the restructuring deal to the commission, although some views may have already gone in.

While many people are frightened of taking on debt and how they will finally be able to pay it back, there are situations when debt is good and debt can actually HELP get you out of a tricky situation. There are many many situations in your personal and business life when under funding will cause major problems.

Some areas to consider :-

House Purchase

For the vast majority of the UK population a house purchase will be the largest transaction they will ever be involved in during their lives. While a mortgage of tens if not hundreds of thousands of pounds around your neck can cause problems, it can cause even more problems if you are underfunded for your purchase.

Many people have tried to cut their budgets to lower the need for a large mortgage only to find that they hit trouble in the future.

Your Own Business

This is perhaps one of the main areas of concern with regards to under funding, with more small business people than ever before running scared of taking on debt. While it is not always advisable to take on large amounts of debt for a business, there are many situations where you will need to ensure you are fully funded and able to support the operations of the business.

In the early days when you probably have more money going out than coming in, it is vital that while taking a sensible view of debt, you ensure that you have enough to ensure the smooth running of the business as well as promotional and advertising work.

Personal Finances

This is also an area where people react to debt in a manner which is helpful short term but may have more implications on a long term basis. While the majority of us will have debts of some form, whether this is credit card debt, loans, etc there may come a time when you receive a windfall, bonus from work, etc. Too many people in this situation will rush to payoff all of their debts and reduce their short term liabilities.

While it seems sensible at the time, many people are then left in a situation where in the medium to longer term they are short of funds and need to revisit their bank for a loan. If you are able to keep up with the repayments on the original loan it might be advisable to put your windfall into a savings account where it is earning interest and there for a “rainy day”.

Summary

There are many people who are scared of debt in the UK, and some quite rightly, but if used sensibly it can help to make your life a little smoother. It can help in both your personal and business dealings and while it is never correct to take on debt for no reason, it can be a very useful tool.

Those who fear debt are often the ones who get themselves into long term situations which can result in IVAs and bankruptcy. Respect debt and it can actually help you!