Are your finances fooling you?

Budgeting bank account provider thinkbanking warns borrowers that only paying the minimum off credit card debts could be masking a genuine problem, even if they feel it's helping them make ends meet today.

Households who don't think they can afford more than the minimum payment would benefit from taking a new look at their budget and figuring out whether/how they can free up some money to clear their card balances more quickly.

So the managed bank account provider advocates better budgeting - and a longer-term approach to financial planning - in order to reduce debt more rapidly. A spokesperson says:

"Many people are finding their monthly living costs so high that they've essentially put debt repayments into 'neutral' and are only paying the minimum on high-interest credit cards.

"Although people in this situation are managing to 'tread water' financially, they could be storing up problems for the years ahead - unless they can find a better way of paying their credit card bills, that debt could be around for much longer (and cost much more) than they ever expected."

In addition, although they're managing to hang on at the moment, it might take nothing more than an unforeseen expense or change in circumstances to send their finances spiralling out of control.

This can be an even greater risk for those who have no savings to turn to in the event of a crisis - yet research by Lloyds TSB for its Spending Power Report indicates that 20% of people do not have any spare cash left over on a monthly basis to put into savings. As thinkbanking warns:

"Even people without significant debts could be leaving themselves open to problems if they're unable to save for the future; putting even a small amount of money aside on a regular basis could really help them avoid debt problems brought about by unexpected costs.

"People who believe they are on top of their finances simply because they are making ends meet on a month-by-month basis may not be considering the bigger picture - but by looking at your monthly income and expenditure you'll be able to see whether you could increase your repayments to escape the 'minimum payment trap' so you can start putting money aside for future expenses."

If you're feeling overwhelmed by the idea of tackling your finances, a managed banking service such as the one provided by thinkbanking could help you manage your money more effectively. The account's Money Manager service is designed to ensure all regular bills are paid on time and customers know how much 'spare' money they have left over that they could put towards a 'rainy day' pot or use to overpay their debts each month. The thinkbanking spokesperson says:

"At thinkbanking, the emphasis is very much on money management and anticipating potential problems before they arise. Our customers get the peace of mind of knowing that their essential bills are paid on time, and there's a clear division between the cash they need for their bills and the cash they have available to spend on non-essentials. Customers pay a single fixed monthly fee for the managed service - and because there are no additional charges for things like bounced payments, this can help them plan ahead more confidently."

You can find more information at www.thinkbanking.co.uk.