Military personnel and veterans face unique financial challenges—whether it’s the cost of regularly moving, medical expenses, or difficulty finding a job.

No surprise that on average service members carry more debt than civilians.

After dutifully serving your nation, creditors on your tail are the last thing you want, but it doesn’t have to be that way.

Service members and veterans are entitled to a wide range of debt management tools that can take some of the burden off their shoulders. Here’s everything you need to know.

Debt assistance laws for military personnel

There are two laws that protect active duty military personnel — The Service Members Civil Relief Act (SCRA) and the Military Lending Act (MLA).

The SCRA covers debts and financial obligations incurred before active duty, while the MLA covers financial obligations entered into during active military service.

These two laws only cover active duty military personnel, but there are a wide range of options for veteran debt consolidation which we will explore later in this article.

So, what do these two laws cover?

The SCRA caps interest rates at 6% on secured and unsecured loans and protects service members from default judgments, property foreclosures, and repossessions. It also allows them to cancel a property or car lease without penalty.

The MLA caps interest rates at 36%. It covers unsecured loans and also applies to spouses and certain dependents.

What is the difference between a secured and an unsecured loan?

Just as it sounds, a secured loans are secured against a valuable asset, such as a house, and an unsecured loan is not.

Can the military help pay off debt?

The military will not directly pay off debt, but there are many options available for military personnel and veterans to help them manage their debts. These include VA debt consolidation loans and specialized debt consolidation loans for veterans.

Debt consolidation loans for the military

If you have taken out multiple loans with different providers it is often easier and cheaper to consolidate these debts, and there is a wide range of options with competitive rates for veterans and military personnel seeking debt consolidation.

The first option is a Military Debt Consolidation Loan (MDCL), also known as a VA Debt Consolidation Loan.

The MDCL is a “cash out loan,” which means you refinance your mortgage for more than the amount owed, then take the difference in cash to pay off your other debts.

Interest rates are based on current market conditions, so timing is crucial to get the best rate when you apply.

You must have a VA home loan to qualify. MDCLs are the best debt consolidation loans for veterans and military personnel who have relatively good credit and a small amount of debt owed to multiple lenders.

Does SCRA apply to military debt consolidation loans?

Yes, and the 6% interest cap on the SCRA is the maximum. So it is worth speaking to your lender to see if they are willing to reduce the rates further.

What are the advantages of military debt consolidation loans?

  1. You will pay lower interest rates and closing costs with MDCLs when compared to civilian options because the VA guarantees as much as 25% of the loan.
  2. There are no monthly mortgage insurance premiums or prepayment penalties.
  3. You can spread the repayment over 10, 15, or even 30 years.
  4. The qualifying standards for debt consolidation for military personnel are easier than for civilian options.
  5. You receive access to the Department of Defense’s Homeowners Assistance Program, which provides financial aid to members of the military

What are the disadvantages of military debt consolidation loans?

  1. You lose equity in your home, so the amount of your home that you own (and that you would receive when you sell) is reduced.
  2. After you leave active duty, you are no longer protected by the SCRA and your home could be repossessed if you fail to keep up with the monthly payments.

Keep in mind that if the amount you owe is more than the equity in your home, you have poor credit, or you’re uncomfortable using your home as collateral, this likely isn’t the best option for you.

What other debt management options are there?

Debt consolidation loans for veterans and active service personal

Military personnel and veterans have access to a wide range of competitive debt consolidation loans other than a Military Debt Consolidation Loan. Lenders offer both secured and unsecured loans, so you can be sure to find the best option for you.

Beware: unsecured loans typically come with higher rates.

Can veterans use national debt relief?

Yes, national debt relief offers programs with distinct advantages not available to civilians. They understand the unique financial challenges veterans face and can help you get a fresh start outside the military. Be sure to mention your military standing before creating a repayment plan.

Debt Management Program (DMP)

Utilizing a DMP through a credit counseling agency is a good option for those with a large amount of debt or those who don’t have good credit.

The agency negotiates on your behalf with your creditors and lenders to reduce your interest rates so your monthly payments can be reduced by as much as 30 to 50 percent.

Remember, the SCRA 6% interest rate cap will also apply if you are eligible. Some agencies will also waive some or all the fees associated with the program for military personnel and veterans.

The main drawback of using a DMP, however, is that it can negatively affect your credit score.

Tips to manage your debt while on duty or in retirement

  1. Speak with lenders and creditors before deployment—the SCRA interest cap is only automatically applied to federal student loans. For all other debts, you must request the rates be reduced.
  2. Set up pay allotments—active duty service members and reservists on extended active duty can establish six pay allotments. This automatically allocates a portion of your pay to designated recipients or businesses.
  3. Set up special power of attorney—grant someone the ability to manage your finances and make pay allotment changes on your behalf while you are deployed.
  4. Me mindful of how credit card debt can pile up—especially once you are no longer eligible for SCRA.
  5. Take advantage of the Savings Deposit Program (SDP)—you are eligible for this if you are receiving hostile fire pay/imminent danger pay. It offers 10% interest rates, higher than the capped 6% on debts, so make contributions to this rather than paying off more debt than required.
  6. Consider a lump debt payment with your SDP—repay debt with SDP funds when you return from deployment.