How often have you seen those friendly advertisements on the television or hoardings (the Underground often has them too) urging us to consolidate our debt and borrow thousands of pounds secured against our homes?
What disturbs me about this practice is that it preys on the vulnerable – those people so deep in debt and struggling to cope with the monthly repayments that they clutch at the proffered straw. Mr and Mrs Meadows did just that. Back in 1989 they borrowed £5,750. Today they are being pursued for a whopping £348,000 after the debt soared due to an annual interest rate of 34.9%, late payment penalties and £40,000 legal fees.
There are several morals here:
1 – Your home is at risk if you don’t keep up payments on a secured loan.
2 – Consolidation loans and long term second mortgages are only a good idea if you get rid of all other means of debt. In other words, get rid of credit cards and don’t spend beyond your means.
3 – Seek proper independent advice before deciding to consolidate your debt.
4 – In general, you cannot borrow your way out of debt.
I know this sounds blindingly obvious, but the Meadows are hardly alone.
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