Help and Instructions

YELLOW APRICOT INSTEAD OF DEBT CONSOLIDATION LOANS

You should make sure that you are in control of your debt at all times and not the debt controlling you. It is when the debts that you have control you that the problems begin!

Debt consolidation loans normally:

•  encourage you to take out further debt;

•  increase the amount you owe overall after taking out the new loan;

•  look cheap but the normal reason for this is that the debt is secured on your home;

•  look affordable as the new loan is spread over a longer period of time;

•  end up costing you more longer term;

Example

Mr Hydrogen owns a house worth £175000 with a mortgage of £125000 on it. He has £10000 outstanding on 3 credit cards and one personal loan. He is paying £378 per month on these commitments. He has telephoned a company whose advert he has seen on television and they say that he can consolidate all these different commitments into one affordable monthly repayment of £229 over 5 years. He will have to pay a broker fee of 1% which equates to £1000 but he should not worry as this will be added onto his new loan and the monthly repayments are all inclusive. There will be an early redemption penalty of 4% if he repays the loan within the first 3 years.

Mr Hydrogen appears to be saving £149 per month by taking out this new debt consolidation loan. But he will end up repaying £13740 and if he decides to pay off his loan in full within the first 3 years, he will have to repay the £10000 he originally owes, the £1000 brokers fee which he has borrowed plus £440 as an early redemption penalty, making a total of £11440. And all this debt is secured on his house on top of his mortgage!

If Mr Hydrogen had sold his house through Yellow Apricot instead:

•  he would have been discouraged to take out further debt;

•  the amount he owed overall would have decreased as he would have been paying off or reducing his existing debt;

•  it would have ended up costing him less longer term as his loan would effectively have effectively frozen at the date he paid it off;

•  he could pay off his mortgage and unsecured debts. He would then end up with just under £40000. He could use £30000 of that to use as a deposit to buy another property at a subsequent Yellow Apricot Auction, having cash left over for emergencies. Alternatively he could leave all the near £40000 in the bank, move into rented accommodation and buy a property later. In any event, he will have control over his debts rather than his debts having control over him!

Remember that the home you are buying belongs to your lender and other secured lenders until monies owed to them are paid off in full. Going a rung or two down on the property ladder or renting for a while to get yourself on your feet again is better than mortgaging up to the hilt and then losing your home altogether!

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