How to Stop Home Foreclosure Through Debt Consolidation

Consolidating much of your debt into one monthly payment could help stop a foreclosure. The consolidation should be a part of a broader plan designed to show your mortgage lender company you have properly restructured your debt and now can afford to make mortgage payments on time. Ideally the debt consolidation should create a monthly payment that is less than what you were paying on the individual bills. The interest rate should be lower as well.

Instructions

1

Gather copies of billing statements for all your debts, including your mortgage. Also gather all correspondence related to a possible foreclosure.

2

Schedule a meeting with a housing counselor approved by the U.S. Department of Housing and Urban Development. Visit the HUD website to find a counselor near you.

3

Show the counselor the complete list of your debts. Ask the counselor about consolidating your unsecured debts -- such as credit cards -- into one monthly payment. Secured loans, such as automobile loans, generally are not included in debt consolidation. Listen as the counselor discusses the various types of debt consolidation loans available through local lenders, including home equity loans, signature loans and debt management plans. You won't qualify for a home equity loan because your home is on the verge of for foreclosure. Credit problems may also prevent you from qualifying for other debt consolidation loans as well. That leaves debt management plans, which are managed by counseling agencies, as an option.

4

Ask the counselor about the debt management plans, which offer many of the same benefits as conventional debt consolidation. A debt management plan allows the credit counselor to contact your credit card companies and other creditors to discuss lower monthly payments, lower interest rates and the reversal of some fees such as finance charges. The counseling agency will pay the bills individually each month after receiving a lump sum payment from you. You'll receive all the advantages of a debt consolidation loan: One monthly payment and lower overall interest rates.

5

Authorize the credit counselor to create a debt management plan and a new household budget for you based on your overall situation. Ask the counselor to pull your credit report if necessary for a complete listing of your debts.

6

Make a three-way call to your mortgage lender with the counselor on the line. Tell the lender that you have completely restructured your household budget and debt with the help of the government-approved credit counselor. Tell the lender that as a result, you can afford to make your mortgage payments on time and would like that the foreclosure be stopped. Continue the conversation as the counselor lists the details of the debt management plan and your new budget and also asks that your mortgage loan be modified by the lender as part of your financial makeover. Loan modification allows the lender to change the terms of the loan to make it more affordable. Or the lender may agree to tack the missed payments onto the back of the loan and end the foreclosure. Continue discussions as needed with the lender to end the foreclosure based on your new ability to pay.