Recession Foreclosures

Self-employed Borrowers applying for FHA insured mortgages have many misconceptions about the approval requirements and frequently fail to understand why some of the guidelines exist.

Here are the FHA guidelines for self-employed borrowers:

Who is considered self-employed?

A borrower with a 25% or greater ownership interest in a business is considered self employed for FHA loan underwriting purposes. This includes anyone who receives a 1099 form even if you  report to a particular place of employment every day.  Many independent contractors mistakenly don’t consider themselves self-employed.

How long does a borrower have to be self-employed to count as effective income?

Most new businesses fail within the first two years and a huge percentage of the one’s that survive the first two years fail within the next two years. FHA tends to be lenient so income from self employment is considered stable and effective, if the borrower has been self employed for two or more years.

When a borrower has been self employed between 1 year and 2 years, in order to be eligible for a mortgage loan, the borrower must have at least two years of documented previous successful employment in the line of work in which he/she is self employed, or in a related occupation. Keep in mind that this is still up to the judgment of the underwriter.  After all, doing the work  for someone else’s business is not the same as running the entire business.

A combination of one year of employment and formal education or training in the line of work in which the individual is self employed or in a related occupation is also acceptable.  Again, the underwriter has discretion in this area.

In addition, in both cases individual lenders may adhere to stricter guidelines in both cases.

Less than one year of self employment is not ever considered effective income.

What is required to verify self-employed income?

For income verification, self-employed borrowers must provide:

• signed, dated individual tax returns, with all applicable tax schedules for the most recent two years
• for a corporation, “S” corporation, or partnership, signed copies of Federal business income tax returns for the last two years, with all applicable tax schedules
• a year-to-date profit and loss (P&L) statement and balance sheet, and
• a business credit report for corporations and “S” corporations.

TOTAL Scorecard Accept/Approve Recommendation (Automated Approvals)

If the Technology Open To Approved Lenders (TOTAL) Scorecard returns an Accept/Approve recommendation, the borrower is not required to provide business tax returns if all of the following conditions are met:

• individual Federal income tax returns show increasing self employed income over the past two years
• funds to close are not coming from business accounts, and
• the proposed FHA-insured mortgage is not a cash out refinance.

Note: A business credit report for a corporation or “S” corporation is not required if the loan receives a TOTAL Scorecard Accept/Approve recommendation.

VERY IMPORTANT: When qualifying a self employed borrower for a mortgage loan, the lender must establish the borrower’s earnings trend from the previous two years using the borrower’s tax returns.

If a borrower:

• provides quarterly tax returns, the income analysis may include income through the period covered by the tax filings, or
• is not subject to quarterly tax returns, or does not file them, then the income shown on the P&L statement may be included in the analysis, provided the income stream based on the P&L is consistent with the previous years’ earnings.

If the P&L statements submitted for the current year show an income stream considerably greater than what is supported by the previous year’s tax returns, the lender must base the income analysis solely on the income verified through the tax returns.

If the borrower’s earnings trend for the previous two years is downward and the most recent tax return or P&L is less than the prior year’s tax return, the borrower’s most recent year’s tax return or P&L must be used to calculate his/her income.

For the self employed borrower, the TOTAL Scorecard Accept/Approve recommendation does not require a P&L and balance sheet be provided, unless the income used to qualify the borrower exceeds that of the two-year average, based on tax returns. In such a case, either an audited P&L statement, or signed quarterly tax return is used to support the greater income stream.

The TOTAL Scorecard Refer recommendation requires a P&L and balance sheet, or income information directly from the IRS if both of the following conditions exist:

• more than seven months have elapsed since the business tax year’s ending date, and
• income to the self-employed borrower from each individual business is greater than 5% of his/her stable monthly income.

Analyzing the Business’s Financial Strength: To determine if the borrower’s business is expected to generate sufficient income for his/her needs, the lender must carefully analyze the business’s financial strength, including the

• source of the business’s income
• general economic outlook for similar businesses in the area.

Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income over the analysis period are not acceptable, even if the current income and debt ratios meet FHA guidelines.

In the next installment we will cover the guidelines the underwriter must follow in analyzing the borrower’s income.

Today, the Obama Administration announced adjustments to Federal Housing Administration (FHA) requirements that will require servicers to extend the forbearance period for unemployed homeowners to 12 months. The Administration also intends to require servicers participating in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible under regulator and investor guidelines. These adjustments will provide much needed assistance for unemployed homeowners trying to stay in their homes while seeking re-employment. These changes are intended to set a standard for the mortgage industry to provide more robust assistance to unemployed homeowners in the economic downturn.

The changes to FHA’s Special Forbearance Program announced today will require servicers to extend the forbearance period for FHA borrowers who qualify for the program from four months to 12 months and remove upfront hurdles to make it easier for unemployed borrowers to qualify.

“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” U.S. Housing and Urban Development Secretary Shaun Donovan said. “Today, 60 percent of the unemployed have been out of work for more than three months and 45 percent have been out of work for more than six. Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home.”

Changes to MHA’s Home Affordable Unemployment Program (UP) will require participating servicers to extend the minimum forbearance period from 3 months to 12 months for eligible unemployed homeowners, whenever possible subject to investor and regulator guidance for each mortgage loan. Additionally, forbearance under UP will become available to borrowers who are seriously delinquent.

All FHA-approved servicers must participate in FHA’s Loss Mitigation Program, which includes the Special Forbearance program. In addition to extending the forbearance period and removing the up-front hurdles for borrowers, the FHA also reemphasized its requirement that servicers conduct a review at the end of the forbearance period to evaluate the borrower for all additional, applicable foreclosure assistance programs and notify the borrower in writing whether or not he/she qualifies for any other available option. If the borrower does not qualify for any foreclosure assistance option, the servicer must provide the borrower with the reason for denial and allow the borrower at least seven calendar days to submit additional information that may impact the servicer’s evaluation.

These reforms build on successful Administration initiatives to support unemployed borrowers through the $7.6 billion Hardest Hit Fund and the $1 billion Emergency Homeowner Loan Program (EHLP). The Hardest Hit Fund, first announced in February 2010, provides support to 18 states and the District of Columbia, which represent the areas hardest hit by steep home price declines and unemployment, to design and implement programs to help struggling homeowners avoid foreclosure. Participating states have dedicated approximately seventy percent of program funds toward programs to help homeowners struggling with unemployment or underemployment. As of this month, each participating state is accepting applications from borrowers and providing direct mortgage assistance to those that qualify.

The EHLP program complements the Hardest Hit Fund, by serving the remaining 32 states and Puerto Rico. Congress provided $1 billion dollars to HUD, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to implement the recently launched program. EHLP assists homeowners who have experienced a reduction in income and are at risk of foreclosure due to involuntary unemployment, underemployment due to economic conditions or a medical condition. EHLP is expected to aid up to 30,000 distressed borrowers, with an average loan of approximately $35,000.

You can find full details in HUD’s New Unemployment Fact Sheet.

Small businesses who are currently looking for loans or forms of financing that may help them with purchases have also begun to consider small business credit cards as this particular type of financing opportunity could be of help for certain companies, particularly if a company is going to need financing to make certain purchases throughout the year or if they are simply looking for a way to improve their credit standing so that opportunities like small business loans may be available at a more affordable rate in the future. However, it’s important for small businesses to make sure they look at what current small business credit card options are available for their specific situation and exactly what the cost will be when this particular type of credit card is used.

Currently, many business credit cards are offering average rates of anywhere from 12% to around 20%, but as with consumer credit cards, this particular rate will depend on the financial position that a business happens to be in. If a company is relatively well-established and has a good business model, this could open up more opportunities for certain types of business credit cards and offer lower interest rates to the business owner, but new companies that may be looking for a small business credit card will want to be cautious as some cards may come with a higher rate and this could potentially be problematic if the balance is carried on these cards for an extended period of time.

Most cardholders know that if a small business or consumer keeps a balance on a credit card they will be meeting higher overall costs when interest rates come into play, as these charges are usually what hurt some cardholders when they’ve never paid down their balance in full but rather continue to charge and only meet minimum payments. Interest rates may also increase in some cases and this would obviously be a hindrance to a business owner if they are dependent upon their small business credit card to make certain purchases but may not be in a position to pay off the totality of their credit card in a relatively fast period of time.

Yet, there are businesses who are seeing options made available from certain credit card lenders that may offer cash back opportunities or other rewards that could potentially be beneficial for their specific situation. Airline travel benefits, these cash back rewards, or other perks that may come along with certain business credit cards have, in the past, been helpful to some companies, particularly those who may have multiple business locations in a certain region and whose business owner may need to fly from one establishment to the next, as an example, but these rewards are not going to be beneficial for everyone.

What many financial advisers want business owners to remember is that there are a wide range of business credit cards available that will offer certain benefits or rewards, and it’s important to take the time and explore not only what a card can do for business but what the overall costs may be when a business owner implements their desired use of this card, as making purchases that will carry a balance and cause interest rate costs to be higher over time need to be factored into a borrower’s equation, as relying solely on one of these credit cards may not be helpful in the long run, but in the past have been able to help some businesses if they use this card properly and make sure they select the right card for their specific needs.

Parents who are seeking out ways that they may help their student pay for college have a variety of options that may range from parent loans to savings programs, but there are also some alternative tuition payment strategies that parents have implemented as a way to help their child meet college costs that are on the rise. However, parents are being urged to explore a variety of opportunities that may be available at the present time as there are some payment options that parents have been using which some financial advisers say are a bad idea.

One of the best ways that parents can help pay for college is by saving through either simply putting funding aside throughout the life of a child or opening a 529 college savings plan. This option can allow parents to put money aside and save for college, no matter if a student may want to attend an expensive university or a more affordable educational institution, as these plans can be structured in such a way that parents can help their student meet the majority of or all of the costs associated with their education.

While there are also options like prepaid tuition programs, some parents have started looking at loans that may be available to help them pay for tuition and fees, but this is where some parents and officials are often divided on how they should help to pay for college. There are some instances where students may be able to borrow federal loans or private loans on their own, but parents often want to help their students and will take out a loan through federal parent loan or private opportunity so that they can meet these college tuition costs without their student having to borrow. Yet, what some parents may overlook is that the cost of a parent loan could come at a higher rate than a federal student loan, and if parents are determined to help their students through college, some have opted to let their son or daughter borrow federal loans, save during their student’s college career, and begun helping them repay this federal student loan debt rather than getting a parent loan which may come at a high rate and overall cost.

There are also some parents who are accessing their home’s equity or even taking money out of their retirement accounts to help meet college costs, as it’s understandable that students are struggling currently due to higher tuition costs across the nation. However this is where many financial advisers often stress parents need to make sure they have their best interests in mind rather than their student’s interests, as taking money away from a retirement savings plan can be greatly detrimental down the road, particularly when a sizable amount is used to meet college costs and potential fees are factored into the equation for withdrawing funds from my retirement plan early, as an example. Also, if a parent borrows money against their home to help pay for college and they are unable to meet this obligation, they have now put themselves in a situation where they could potentially lose their home as a result.

Understandably, the way that a parent helps their child will be an individual decision that only they can make but when it comes to exploring the options available, many financial counselors want parents to heavily research grant and scholarship options that may be available for their son or daughter, as these free financial resources will obviously be the best bet for anyone needing help paying for college. If it’s too late to make a contribution to a 529 savings plan or prepaid tuition plan, parents who have a student that happens to be in a position where loans may be necessary have been better off in some cases by letting the student borrow loans and then planning to help them repay this debt after graduation, as again federal student loans can be more affordable, in terms of interest rate payments, than federal parent or private loans.

Private modifications from Citigroup could potentially be an option for certain homeowners who are not able to qualify for a federal home modification or in cases where in-house assistance plans may be a better fit for a particular homeowner, this could be the route to foreclosure prevention that is best for homeowners who are struggling financially and looking for a way to avoid the loss of their home. Yet, these alternative modifications that may offer private programs for homeowners in need have not always been helpful, but they are in some cases the only resort that a homeowner may have after being denied a federal home loan assistance plan.

The different types of modifications that are available to homeowners may be limited in some cases, but for modifications that are classified as private, when broken down by investor types within the federal Making Home Affordable Program, did increase between May and June of this year, and as of the most recent report stood at 4593. However, alternative modifications that are being made by Citigroup may also be helpful in that homeowners who may be behind on their mortgage payment or who may be suffering from other financial setbacks could potentially benefit from these proprietary plans simply because servers like Citigroup could specifically work up an option for a homeowner’s particular needs.

For Citigroup homeowners who are struggling in areas like delinquency, there are some programs that may be able to help homeowners from these private initiatives that mirror Making Home Affordable opportunities that offer options like principal forbearance or term extensions. Homeowners may be in a position where they have only hit a rough patch for a short period of time, but after falling behind on their mortgage payment they may be at risk of foreclosure. This has been the case for some and there have even been further problems which arise where a homeowner may no longer be in a position where they can qualify for a federal home loan modification, but if Citigroup used options like term extensions or rate reductions in some cases, homeowners in these situations may be able to continue making their mortgage payment without fear of losing their home.

These private modification plans do still have problems and homeowners may see issues arise when it comes to some opportunities being unaffordable for their situation, despite a modification being in place. Citigroup is not the only servicer to see homeowners default even after modification has been made, but there are some homeowners who have been in a position where these in-house assistance options were made available and they fell behind on their mortgage payments once again. It’s because of this that some homeowners may want to not only speak with representatives from their bank but also counseling agencies that can help explore a wider span of programs that could potentially be available as not all homeowners are set up to benefit from a simple modification but may still have foreclosure prevention plans available to help them keep their home.

Numerous Americans are still struggling financially due to setbacks like unemployment or factors related to their health which may have suddenly brought about either a decrease in income or a sudden increase in debt, which is the reason that some homeowners are currently considering bankruptcy as they see their financial position seemingly deteriorate to a point where they feel there is no return. However, homeowners who are considering bankruptcy have bankruptcy counseling assistance and credit counseling resources that may help them not only to look at their financial position and explore options that may help them find more affordability when it comes to meeting their financial obligations, but if it is deemed that bankruptcy could potentially be one route a homeowner might have to take, bankruptcy counseling sessions can help consumers better understand what bankruptcy will mean for their specific financial life.

Usually, consumers who return to an agency that will offer pre-bankruptcy counseling will be in a position where they will not only be able to review the bankruptcy process and get a better understanding of what this entails, but of course a good counseling agency will have their representatives offer possible alternatives to bankruptcy and explore how these alternatives may be helpful. Sometimes there are simple solutions that may help consumers avoid filing bankruptcy as this can be a major setback in a consumer’s personal financial life, no matter how bad of a financial position they happen to be in at the present time.

While there may be no simple solutions, there are some counseling agencies that may be able to offer a debt management or debt settlement opportunity for homeowners who otherwise may be considering filing bankruptcy due to the fact that they are feeling overwhelmed with debts that may range from loans and credit cards to their mortgage. Homeowners must also remember that there are options like modifications that can make a mortgage payment more affordable or, in cases where unemployment may be a factor, forbearance plans have been used by homeowners in the past as a way to help them avoid foreclosure by foregoing payments on their mortgage payment. Also, there are states where high levels of unemployment are currently in place from programs like the Hardest Hit Fund that could potentially help homeowners not only with financial stresses related to unemployment but those who may be behind on their mortgage or are facing negative equity may also be aided by certain programming from their servicer and state housing agency.

However, the good news is that men and women who are considering bankruptcy are typically required to participate in a pre-bankruptcy counseling session, so this could potentially stop some consumers from making a mistake if the bankruptcy is potentially avoidable for their situation, but many officials want homeowners to explore credit counseling sessions well before bankruptcy is considered due to the fact that there may be preventative measures that could stop any damage from occurring in a homeowner’s financial life by offering these assistance options before a homeowner’s finances become too strained.

Homeowners may also be able to consult with housing counseling agencies like those from the HOPE Hotline as a way to help them explore specific cost reduction options available for a homeowner’s mortgage payment, as there are many homeowners who are considering bankruptcy simply because their home loan obligation, coupled with other debts, has become too difficult to meet. Since the economy and many consumers continue to struggle, homeowners do need to be aware that even though bankruptcy may have been the right choice for some, homeowners must take action to curtail any problems in their financial life early by using nonprofit credit counseling or consulting a financial professional, but of course, even if a homeowner goes so far as to have to participate in this bankruptcy counseling session, there may still be ways to avoid filing for bankruptcy so that a homeowner may find options to get back on their feet financially.

When it comes to personal bad credit repair, there are consumers who are at various points in their financial life which may either allow them to begin the process of digging themselves out of a negative financial situation, in terms of a low credit score, but there are others who are still suffering under the weight of long-term unemployment or other factors that have been the cause of their financial distress. While it’s understandable that with continued increases in employment hardships that have been faced, and jobless figures that have inched up according to most recent reports, there are still problems for numerous consumers, but those who are in a position to begin the financial repair process must understand that a bad credit score can not be repaired overnight.

However, there are some steps in the bad credit repair process that certain consumers fail to take, as simply reviewing a credit report and analyzing the items that are listed is one of the most basic practices that consumers can implement, since this could also lead to a faster bad credit recovery when a consumer is looking to reestablish themselves in their financial life. There are a variety of problems that can arise on a credit report and, when these mistakes are not corrected or remain on a consumer’s report, it obviously leads to a lower score and this can make not only getting out of a bad credit position more difficult, but of course a lower credit score has negative impacts in other areas as well.

Obviously, creditors may have reported incorrect information, may have kept the debt on a consumer’s credit report when they paid it off, or there are some cases where consumers may have been delinquent on certain debt obligations and the collection agency and original creditor both have these delinquencies listed, which would obviously imply that a consumer has two debts that are past due, rather than just the one. There are countless examples like this across the Internet, but when it comes to addressing these issues, financial counselors always suggest that consumers who are in the bad credit repair process look over their credit report first so that they can contact a credit bureau and the creditor associated with the mistake in order to get the error erased.

After this, consumers must simply make smart financial habits a routine part of their life and this can be accomplished through either budgeting, reducing certain types of spending, or consulting a credit counselor in order to get a better hold on one’s financial life. While rebuilding a bad credit score will take different amounts of time for each consumer, this topic which has been heavily covered in not only recent months, but over the past years, particularly for consumers who saw their credit score take a hit as a result of factors stemming from the recession, is still an issue that many consumers are facing and need guidance in so that they can put themselves in a better financial position.

Reviewing a credit report may show that a consumer has no errors and must start the bad credit repair process by combating debts, delinquencies, or simply turning over a new leaf in their financial life without the help that comes from erasing a stain from their history, but when it comes to implementing these proper financial practices, consumers will find that it’s easier to keep themselves in a positive financial position if these practices become second nature in their spending and repayment habits.

Consumers who are position where they may not have comprehensive health insurance coverage have, over the past months, been able to take advantage of a variety of options, particularly for those who are working with an employer who may not provide the insurance they need. Tax credits and incentives have been given to some employers in the hopes of allowing them to either keep health insurance coverage active at their business or prompt them to acquire some form of employer group health insurance policy for their workers, but as we saw earlier this year, there are still men and women who are facing the potential medical costs that could arise for treatment or the result of medical attention needed if a catastrophic emergency were to occur.

However, there are some who have opted to take part in health savings accounts, which are usually paired with a high detectable health insurance policy, and this can guard most workers from meeting these high medical costs if an emergency or injury were to happen. Yet, questions as to whether these options can be helpful for unemployed individuals have arisen, and there are also general aspects of using health insurance savings accounts and high deductible insurance policies that consumers may still have here in June.

Ideally, consumers who are in position where a comprehensive health insurance plan is not available can contribute to a health savings account, which will go along with their high deductible health insurance plan, and if a major emergency were to arise, they would only have to meet their deductible before remaining costs for treatment would be covered under the policy. Where this health insurance savings account comes into play is that it can help pay the deductible or if small treatments or relatively inexpensive medical attention is needed, money from this health savings account can be used by these policyholders.

The problem for unemployed individuals comes from the fact that many are not in a position to put aside money into a health savings account if, obviously, they have lost their primary source of income. While a high deductible health insurance plan is available for most unemployed individuals, and can be a safeguard against excessive medical costs were an emergency to occur, unemployed men and women often find that if they are only relying on unemployment benefits as their source of income, it could be stretching their finances to contribute to a health savings account, but this may be an option for some.

What consumers must make sure of, if a health savings account and high deductible plan is in their best interest, is that they work with an insurance provider that will not require they use the entirety of their funds from their health savings account each year, as there have been some accounts that will not allow savings to roll over on an annual basis, and this would obviously be an incredible financial strain and burden for men and women who are currently without a stable form of income.

A great deal of information has recently been released concerning the federal home loan modification program, and specifically related to permanent home loan modifications, there is good news for homeowners as an increase was seen according to reports released here in the early part of June, which tracks data through April 2011. However, there are also some indications that aspects of the Treasury Department reports have led to servicer’s facing low ratings and, in some cases, funding may be denied to major financial institutions as a result of their failure to comply with certain HAMP standards.

While we hope to bring more information on not only the modification program and changes mentioned in these reports in the coming days and weeks, we want the focus today on the increase in the number of permanent home loan modifications that have been seen, as this is ultimately the goal that homeowners are striving toward in their foreclosure prevention efforts. The issue of these major financial institutions who may have their fees withheld has obviously been a hot topic since yesterday, but there are some indications that if changes are made, this potential denial of funds could be reversed and these banks will be given the incentives that have traditionally gone to financial institutions that make these modifications.

Yet, the reason that these new performance reviews and modifications are what homeowners are focusing on at the present time is because this could lead to more beneficial results in the program overall, if mortgage servicers are being held to an even higher standard. While the most recent report, which tracks data through April, stated that there were 608,615 active permanent home loan modifications as of this latest report, which was an increase from the previous month which only had 586,916 active permanent modifications reported, there are hopes that homeowners who have had a frustrating trial or have had problems when dealing with their mortgage servicer will begin to be corrected thanks to more information being made available about individual banks.

There have already been some banks who have contested this denial of their fees for participating in HAMP as there are some issues which are outside of a bank’s control and, as a result, some of the aspects that go into these performance reviews may have led to a bit of a lower score for certain financial institutions and their particular Making Home Affordable Program efforts. As an example, many homeowners grow frustrated when they are not given a modification that is significantly lower than their mortgage payment, but this may be a situation where certain aspects of the program and guidelines are to blame, but no matter what the source of a homeowner’s problem happens to be, corrections must be made. Again, it’s hoped that even if program deficiencies or servicer error is to blame in a variety of cases, new reviews conducted by the Treasury Department and HAMP will lead to not only a more positive experience for homeowners seeking foreclosure prevention assistance but continued increases in these permanent modifications will be seen as well.

Homeowners are some of the consumers who are in a position to take advantage of secured debt consolidation loans, as many individuals who use this type of debt consolidation often will use their home as collateral, and either borrow against the equity they already have built up for the purposes of debt relief. However, consumers who are reportedly still seeking out lines of credit and loans here in the month of June may find that opportunities for this type of debt consolidation may seem attractive, as someone who may want to use a home equity loan, as an example, may be in a position to get an affordable rate at the present time, but this does not necessarily mean that debt consolidation is in the best interest up every homeowner.

Typically, secured loans will be used by homeowners or bad credit borrowers who may not be able to acquire a traditional personal loan for the purposes of debt consolidation, or who may feel that they will gain more affordability overall with this particular type of secured debt consolidation loan. Secured loan consolidation options are, essentially, used in a similar fashion as an unsecured debt consolidation loan, in that consumers feel that if they will compile their debts under one obligation associated with an affordable interest rates, they will be saving money in the long run. Many consumers simply figure that if they have multiple interest rates on a variety of debts, this will lead to higher overall costs, but borrowers need to make sure that this is indeed the case for their personal situation.

There are instances where consumers are able to combat their debts separately, with the use of proper budgetary habits and smart financial practices, which may help them erase various debts faster and at a lower overall cost. Also, a consumer who borrows against their home with a secured loan will be increasing the risk associated with this particular type of loan, as anyone who is unable to repay their secured debt will obviously lose the collateral, and this could lead to a borrower being evicted from their home.

Exploring options like paying off debts one at a time, with the common practice of taking minimal payments on all debts except one and budgeting so that a consumer can pay more than the minimum payment on that specific debt source can be helpful in many cases as a secured loan, or any debt consolidation loan for that matter, usually takes longer to repay since a higher principle amount allows more interest to accrue and this leads to higher overall costs in many cases.

Reviewing these aspects of secured debt consolidation loans will not only be necessary before a consumer even begins to consider consolidation, but looking at various options that may be available for debt relief, even if debt consolidation is necessary, will also be helpful. Some consumers may find that they can use a personal loan to consolidate debt, which will be unsecured and not risk their home, but there are also opportunities even from credit cards that will allow consumers to transfer balances from other debt sources and pay off the consolidated balance. However, running all of the numbers, comparing consolidation options on interest rates, and simply looking to areas in a consumer’s personal life where excessive spending could be stopped and free up money to help combat these debts without consolidation are all aspects of debt relief plans that should be considered before a secured loan is used.