Military & Veteran Debt Relief

Six Military Debt Relief Options

Members of the military have plenty to worry about when they are serving our country. The last thing they should have to worry about is if they paid the mortgage and credit card bills this month.

The good news is there are laws that protect servicemembers from many civilian credit worries. The bad news is a lot of military personnel still suffer severe financial difficulties and have a hard time finding debt-relief options. There are programs to help active-duty military and veterans with debt relief. Best to start with the most significant.

1. Servicemembers Civil Relief Act

It’s been around since 1940 and was initially called the Soldiers’ and Sailors’ Civil Relief Act, though its origin dates back to the Civil War. Congress passed legislation that gave relief to soldiers who could not pay their debts while at war. Union privates made all of $13 a month in the Civil War, which was actually $2 more than their Confederate counterparts. That wasn’t a lot, but at least they didn’t have to deal with collection agencies threatening to ruin their credit score.

The Servicemembers Civil Relief Act limits those hassles and provides other protections for active-duty personnel. The law bans creditors from proceeding with foreclosures, evictions, garnishments and repossessions and other actions until 60 days after a service member returns from active duty. When service members are called to active-duty, lenders are required to set a maximum interest rate no higher than 6%.

Despite such protection, studies show that more than one in four military families carry $10,000 or more in credit card debt, and 10% of families owe $20,000 or more. More than half of enlisted and junior non-commissioned officers reported they often make only minimum payments on their credit cards.

2. Military & Veteran Debt Consolidation Loan Options

If you are looking for a debt reduction plan, a good place to start would be examining the interest rates you pay on your current bills, especially credit card debt and compare those against the interest rate charges for a debt consolidation loan. One form of debt consolidation is taking out one loan to pay off several smaller loans. It is most often used to eliminate credit card debt because debt consolidation loans should have far lower interest rates and agreeable terms.

For example, depending on your credit history, you could get a debt consolidation loan of 8%-10% interest rate to wipe out credit card debt that probably has reached 25%-30%.

There are several types of debt consolidation loans – personal loan, home equity loan, military debt consolidation loan, balance transfer loan, loan from family or friends – and each has its advantages and disadvantages.

• Personal loans: Borrow a lump sum from a bank, credit union, or online lender to pay off credit card debt, then repay the loan in fixed installments.
• Home equity loan: Borrow against the value of your home for a lower interest rate, but risk losing the house if you can’t make payments.
• Military Debt Consolidation Loans: Veterans with VA loans can consolidate unsecured debts into one lower-interest payment.
• Balance transfer cards: Transfer credit card debt to a new card offering 0% interest for a limited time, but beware of high rates if you don’t pay it off in time.
• Family and friends: Borrowing from loved ones can offer great terms, but mishandling it can seriously damage relationships.

If you’d rather avoid a loan, a nonprofit credit counseling agency can help you set up a budget and join a debt management program that lowers interest rates and pays off debt in 3–5 years without needing good credit.

3. Homeowners Assistance Program (HAP)

Homeownership is practically a given in the military – 51% of millennials in the military are homeowners – but with that comes another given: There are likely to be problems keeping up with payments. The Department of Defense recognized that and set up the Homeowner Assistance Program (HAP), which provides financial assistance to qualified candidates facing a crisis concerning their housing.

HAP covers active service members, veterans, surviving spouses and civilians working in the Department of defense. It provides financial assistance for those facing foreclosure, having to sell their home at a loss or being unable to sell their home, or those dealing with collections agents. Members of the Armed Forces who incur a wound, injury, or illness in the line of duty during deployment (30% or greater disability) also qualify for assistance.

Applicants who qualify receive financial assistance under one of three scenarios:

1. Private Sale: Benefit amount is the difference between 95% of the home’s prior fair market value and the selling price. HAP may also reimburse the applicant for normal and customary seller’s closing costs
2. Government Acquisition: Benefit amount is the greater of 90% of the home’s prior fair market value OR the mortgage(s) payoff amount
3. Foreclosure: Benefit is paid to the lien holder for legally enforceable liabilities.

4. The Military Lending Act of 2006

The Military Lending Act of 2006 is a federal law designed to protect active-duty service members and their families from predatory lending practices that can trap them in cycles of debt. It sets limits on the interest rates and fees lenders can charge and bans certain abusive loan products altogether.

5. VA Housing Assistance

Veterans can find financial relief through the Veterans Administration (VA). For example, Military service members can get a loan by refinancing their house through the VA. Qualified veterans can use the Interest Rate Reduction Refinancing Loan to obtain a lower interest rate or change from a variable rate loan to a fixed rate. If you want to take cash out of your home equity, the Cash-Out Refinance Home Loans program lets you replace your current loan with one that has new terms.

The VA home loan program typically reviews only the past 12 months of your credit history, unless there are serious issues such as bankruptcies, tax liens, or collections. VA loans also come with some great perks: no down payment is required and interest rates are usually lower than those of traditional loans. The danger is your house is collateral and can be foreclosed if you don’t make the payments. Serious decisions like this require careful consideration.

6. Free Credit Counseling from InCharge Debt Solutions

InCharge Debt Solutions offers free credit counseling to the military and veterans. If you qualify, you may join a debt management plan, which could help you pay off your debt over 3-5 years. Qualifying depends on factors like the amount of debt as well as your income. The easiest way to find out if you qualify is to take part in a free credit counseling session.

Instead of having an array of bills to keep track of, debt consolidation or a debt management plan would mean writing one check per month. Whether that’s the answer or not, there are far better solutions than the quick fixes offered by payday lenders outside of military bases. The last thing a member of the military needs is for bad credit to make them a discredit to the armed forces.

Grants for Active Military and Veterans

The VA has a number of grant programs designed to help veterans and military families deal with everything from finding a permanent residence to gaining access to cultural community events to hiring legal aid to receiving financial aid for a college education. The grant money is generally awarded to local civic and religious groups who then disburse it to veterans and active military. To find the list of available grants for the military service members and veterans, visit these sites:

• Grants.gov – This site is part of the Veterans Administration and offers grant information on locations for applying for grants.
• GrantWatch.com – Lists grants from all over the country for nonprofits, faith-based organizations and 501 (c)(3) to help veterans with everything from finding a home to technical training for a job.
• Finaid.org – This website focuses on grants for veterans and their dependents.
• USVeteransMagazine.com – This site, like Finaid, has a long list of places for veterans, service members, their spouses and dependents to check for grants to attend college.
• MilitaryBenefits.com – Features a page on 10 benefits that veterans might not know about, including information on long-term care, certification programs and unused GI Bill benefits.

Alternative Military Debt Relief Options

Along with specialized debt relief solutions available to military servicemembers and veterans, there are other options that can be utilized by anyone. All of these options, alone or used in combination, can provide important relief.

It’s worth noting that the government has programs providing financial help for people with disabilities. If you are one of the 30% of veterans with a disability, it’s worth investigating to see if assistance from those programs can help you offset your debt.

As for credit card debt, the choice often comes down to deciding between debt settlement or bankruptcy.

Debt Settlement

Debt settlement is an attempt to negotiate an agreement with creditors that allows you to pay less than what you owe. While that may sound, it is not a perfect solution. It can damage your credit rating and affect your future ability to secure credit in the future. Some states even have laws against debt settlement companies.

That said, if you choose this option, you typically will engage a third-party firm to do the negotiating with creditors. These companies advise you to stop paying bills and, instead, put money in an escrow account. When there is enough money in the escrow account – which usually takes 2-3 years, during which time late fees and interest charges add to the balance – an offer is made to the creditors to settle the debt.

It the creditor accepts, the money is transferred, and the debt is settled. Creditors are not obligated to settle. Also, there are fees that must be paid to the debt settlement company.

The benefit of debt settlement is appealing, but may be outweighed by the damage to your credit score.

Credit Card Debt Forgiveness

This option is similar to debt settlement — you pay less than the full amount of your debt without dealing with aggressive for-profit companies. With credit card forgiveness — but there is no negotiating involved. Creditors forgive as much as 50 to 60% of the amount you owe. In exchange, you agree to a fixed monthly payments that eliminate your debt in 36 months.

While there is still damage to your credit score, a credit card forgiveness program will stop debt collectors and lawyers from pursuing you for the debt.

Bankruptcy

Bankruptcy is a lifeline for people who can’t solve their debt problems any other way. The two major kinds of bankruptcy – Chapter 7 and Chapter 13 – are alike in this one significant way: Each should be your last option when trying to get out from under debt.

Chapter 7, or “straight” bankruptcy, offers protection from creditors and collection agents, but it comes at a price. Non-exempt assets are liquidated – sold, that is, with all the proceeds divided among your creditors. However, items like your home, car, tools for work, clothing, retirement accounts and household goods, are considered exempt. In fact, 96% of Chapter 7 filings are deemed “no asset” cases, meaning the trustee doesn’t believe there is any property worth selling.

Still,  though your debts are resolved, the bankruptcy remains on your credit report for 10 years and it will be difficult to get home or car loans.

Chapter 13 bankruptcy involves a judge-approved plan, in which you agree to pay your debts in 3-5 years. While you are under the court’s protection, creditors and collections agencies cannot continue to contact you. If you stay current with payments, you may retain most of your assets,  but Chapter 13 bankruptcy remains on your credit report for seven years.

Veterans Administration Debt-Relief Options

The VA offers vets in financial trouble several options, depending on the source of their problem. For example, the Loan Guaranty Service may work with mortgage companies and banks to ask forbearance for those Veterans having difficulty paying or work out a Mortgage Loan Modification – which could lead to a reasonable payment plan to keep the Veteran in his or her home rather than go to foreclosure.

If you are a borrower and want to contact the VA Loan Guaranty Office regarding any aspect of your mortgage, call 1-877-827-3702. Visit the trouble making payments web page if you have financial trouble or some other circumstance regarding your VA home loan. VA also makes financial planning services available at no cost to beneficiaries of:

• SGLI (Servicemembers’ Group Life Insurance)
• TSGLI (Traumatic Injury Protection)
• FSGLI (Family Servicemembers’ Group Life Insurance)
• VGLI (Veterans’ Group Life Insurance)

Servicemembers who are interested in financial counseling but have not received a TSGLI payment may contact their Command Financial Specialists or Financial Readiness Counselor.

Veterans who are not a beneficiary of one of the benefits listed above and not able to access this free financial counseling service provided by VA, may find free or low-cost financial counseling options through various nonprofit organizations, including:

• Credit unions
• Extension offices
• Religious organizations
• Nonprofit agencies

It’s important that the Veteran’s credit counseling service be accredited by either of these organizations:

• National Foundation for Credit Counseling (NFCC)
• Financial Counseling Association of America (FCAA)

Furthermore, veterans may seek advice and support through VSO’s and MSO’s who provide financial readiness and planning training for those during transition. For example, the USO’s Pathfinder Program provides no-cost financial literacy resources to transitioning servicemembers and their families up to one year after they separate from the military.

Debt and Your Military Security Clearance

Service members are held to a higher standard than civilians. They can’t abuse alcohol, drugs or even credit. Article 134 of the Uniform Code of Military Justice spells it out: Service members who don’t pay their bills “bring discredit upon the armed forces.”

They can lose their security clearances, promotions and even face court martial if they fail to live up to their financial obligations. Despite such consequences, 36% of military service members have trouble paying monthly bills, according to a study by the Financial Industry Regulatory Authority (FINRA).

That’s also why you often see payday lender storefronts clustered around military bases. While payday loans might seem like a quick fix, they’re often a fast track to deeper financial trouble. For civilians, these loans can carry sky-high interest rates (often 400% or more) but active-duty service members are protected under the Military Lending Act, which caps the interest rate at 36%.

Rather than fall into the payday loan trap, consider safer alternatives like a debt management program or debt consolidation loan that can lower your interest rates and help you make just one affordable monthly payment.

If you’re even slightly tempted by the flashing signs, please take a deep breath, and start exploring other debt-relief options. The Servicemembers Civil Relief Act is your friend.

InCharge Military Debt Consolidation

If you’re in the military and looking for a simple way to manage your debt, InCharge’s debt management program might be the right fit. It allows you to consolidate your credit cards into one affordable monthly payment without taking out a new loan.

InCharge’s certified counselors work with your creditors to lower interest rates, waive fees, and stop collection calls, helping you save money and pay off debt faster. It’s a good option if you’re dealing with high-interest credit cards and want a clear, structured path to becoming debt-free.

Getting started is easy: Just fill out the form on InCharge’s website and start your credit counseling session.

InCharge Military Financial Resources

As a way of honoring military service and showing appreciation for the sacrifice of military families, InCharge offers these tailored resources:

• Military Money Articles. InCharge is proud to publish Military Money articles on InCharge.org: a comprehensive personal finance portal for service members and their families. Find informative articles, videos and podcasts about the GI Bill, VA loans, Thrift Savings plans and much more.
• Free military and veteran eBooks. Recent publications include Defending Your Home, a guide to military housing issues, and Transitions: Where Do I Go from Here? How to transition from military to civilian life.
• Daily tips-oriented Military Money Minutes broadcast on Armed Forces Radio.

Defending Your Home – eBook

Defending Your Home is designed for service members, veterans and their families to help with navigating the special housing challenges faced by those who serve. May this book help you establish and maintain your own personal and financial security through sustained homeownership.

Download From iTunes

Kindle & Other Formats

Additional Financial Assistance Resources for Military Families

The Department of Defense and Military Services offer servicemembers and families military debt relief  and help with home loans through networks of financial literacy and preparedness resources, including one-on-one financial counseling. Navigating through the internet to find these programs isn’t easy, but that is why we are here to help. To find more information on financial readiness resources, education, and support, go online to the Office of Financial Readiness.

• Military Money – This is a personal finance website for military families that provides free information and resources. They have many helpful articles that explain the many unique financial situations military families find themselves in.
• Military OneSource – This service is provided by the Department of Defense at no cost to active, Guard and Reserve (regardless of activation status) and their families. The program provides service members with a connection to an NFCC member agency, like InCharge Debt Solutions, and offers funding for up to 12 counseling sessions per family.
• Explore VA Health Care Benefits – Explore VA provides a fast way to learn about VA benefits, find out which ones you may be eligible for, share information with friends and family, and apply for benefits.
• Military INSTALLATIONS – This is the official DoD source for installation and state resources available to active-duty, guard and reserve service and family members.
• S. Military Personnel and Veterans page of USA.gov – Here, you’ll find resources and official information for active-duty military personnel, including history, support for families, benefits, career assistance, education and much more.
• Servicemembers HomePage, Consumer Financial Protection Bureau – This government website has sections on Planning Your Future and Protecting Your Finances and much more.
• Veterans Affairs Website – The U.S. Department of Veterans Affairs provides detailed information on health care benefits, life insurance, pensions, home loans, survivor benefits, education and much more.
• Military.com – This is a good resource, which explains in plain language the many benefits available to active-duty personnel, reserves, National Guard, retirees, veterans and their families.