Military Debt Relief
InCharge Debt Solutions recognizes that service members from all branches of the US military face unique financial challenges related to frequent relocation, deployment, disability and PTSD. InCharge offers credit counseling 100% free of charge. We’re here to help.
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Five Military Debt Relief Programs
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.
Here are five programs designed to help active-duty military and veterans:
- Servicemembers Civil Relief Act – This federal law, originally enacted in 1940, regulates interest rates for credit cards, auto loans and other financial services for active-duty military. It also requires landlords to let you out of your lease, without penalty, for deployment. The SCRA has been amended and protections have been added to help with evictions and wage garnishments.
- Military Lending Act – Under the Military Lending Act, servicemembers cannot be charged more than 36% interest for credit products.
- Veteran’s Housing Benefit Program – This program offers loans to veterans at very low rates.
- Nonprofit Credit Counseling– Free financial counseling provided by nonprofit companies like InCharge Debt Solutions.
- Debt Consolidation– There are a few options in this category, any one of which could provide the debt-relief solution best suited for your problem.
Whether it’s a debt management program, a debt consolidation loan, debt settlement or, in the most severe instances, bankruptcy – consolidating your debt can ease the strain. Debt can feel unending, but there is a way to seek military financial help and find one of the several ways to consolidate debt.
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.
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: This is the most common form of debt consolidation. You go to a bank, credit union or online debt consolidation lender, ask for the amount you need to pay off credit card debt, they check your credit score and payment history and approve or disapprove your loan. More than 20 million Americans owed over $178 billion in personal loans in 2022, a 24% jump over the previous year. About 3% of personal loans were over 60 days past due.
- Home equity loan: This loan has the lowest interest rates for one very important reason: You are putting your home up as collateral. If you miss payments, you could lose your house. In return, you get interest rates as low as 6% compared to the national average of 17.92% for credit cards.
- Military Debt Consolidation Loans: If you have a VA loan on your home, you may qualify for a Military Debt Consolidation Loan, which has a lower interest rate than standard civilian consolidation loans. With a consolidation loan, you can pay off all unsecured debts – credit cards, medical debt, payday loans, etc. – and then make one monthly payment to a single lender.
- Balance transfer cards: The attraction here is that you pay 0% interest for an introductory period (usually 6-18 months), giving you time to pay off credit card bills at no interest. However, it’s very difficult for people already in trouble with credit cards to qualify for a 0% interest card. If you do qualify for one, you must pay off your debts in the introductory period or your rate soars to 18%-20% or higher.
- Family and friends: This could be the place to get the lowest rates and best repayment terms IF both sides trust each other and act responsibly. IF they don’t, this can ruin relationships and be a really bad idea.
If you’re not happy with any of these choices, you could consolidate your debt without a loan through a nonprofit credit counseling agency. Credit counselors walk you through the steps of setting up a monthly budget and then recommend debt-relief options. One of those is a debt management program, which doesn’t require a loan and doesn’t consider credit score as part of the qualifying process. Debt management programs are a good way to eliminate debt, eventually increase your credit score and relieve stress from financial problems. Counselors work with lenders to reduce the interest rate you’re paying and the amount of your monthly payment so that all debt is eliminated in a 3–5-year period.
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:
- 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
- Government Acquisition: Benefit amount is the greater of 90% of the home’s prior fair market value OR the mortgage(s) payoff amount
- Foreclosure: Benefit is paid to the lien holder for legally enforceable liabilities.
The Military Lending Act of 2006
The Military Lending Act of 2006 limits predatory practices. More relief is offered through the Veterans Administration. The VA home loan program usually looks at only the previous 12 months of credit history unless bankruptcies, tax liens or collections are involved. It also doesn’t require a down payment, and interest rates are typically lower than those offered with conventional loans. Military service members can also 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 programs lets you replace your current loan with one that has new terms. 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.
Free Credit Counseling for the Military and Veterans
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.
Other Debt Relief Options for the Military
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.
One important step is to decide between debt settlement or bankruptcy.
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 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:
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 see so many payday lender storefronts outside the gates of military bases. The payday lenders won’t tell you that making only one monthly payment on a debt management program or debt consolidation loan with lower interest rates might be the best route to solvency. Instead, they will offer the quick solution of taking out a payday or auto title loan where the average interest rate is 400% and could be as high as 1,000%. 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.
Military Debt Relief Programs and Services by InCharge Debt Solutions
From free budget and credit counseling to personal finance books and podcasts, InCharge Debt Solutions is dedicated to serving those who serve our country. Financial readiness keeps our troops and our nation strong.
InCharge Military Debt Consolidation
If you are looking for a military debt consolidation program, InCharge’s debt management program may be a good fit for you. With this program, you can consolidate your debts without taking out a new loan.
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.
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.
Seek Professional Help for Military Debt Relief
Military personnel, especially those trying to live on a budget for the first time, face a lot of economic pressure. Fortunately, there are government agencies and nonprofit credit counseling services to ease you through the trouble. If you’re a servicemember who recognizes that you’ve overextended yourself financially, take advantage of the free counseling services offered by InCharge or go online and research what is available to help you successfully eliminate debt.
About The Author
Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.
- Phillips, D. (2018, December 18) Suicide Among Veterans Is Rising. But Millions for Outreach Went Unspent by V.A. Retrieved from https://www.nytimes.com/2018/12/18/us/veterans-suicide-prevention.html
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- N.A. (ND) 10 Veterans Benefits You May Not Know About. Retrieved from https://militarybenefits.info/10-veterans-benefits-you-may-not-know-about/
- Kiel, P., Hartman, M (2013, May 15) On Victory Drive, Soldiers Defeated by Debt. Retrieved from https://www.propublica.org/article/on-victory-drive-soldiers-defeated-by-debt
- N.A. (ND) Understanding the Soldiers and Sailors Relief Act. Retrieved from http://www.militaryauthority.com/benefits/legal-issues/understanding-the-soldiers-and-sailors-civil-relief-act.html
- N.A. (ND) The Servicemembers Civil Relief Act. Retrieved from https://files.consumerfinance.gov/f/documents/cfpb_servicemembers-civil-relief-act_factsheet.pdf