There are many debt-relief programs and resources for veterans and active-duty service members alike. Some focus on helping military personnel with homeownership while others focus on managing your finances and debts. It’s especially important for active-duty military members to keep their finances in order. This will help you get or maintain security clearances. This article covers the most common debt relief programs and financial resources for veterans and active-duty service members.
Written by Attorney Jenni Klock Morel.
Updated April 13, 2022
Having your personal finances in order is critical if you’re active-duty military personnel. Fortunately, there are many programs and resources for veterans and active service members. This includes financial resources to help with homeownership and financial counseling to assist with debt management. Some programs give cash grants to help military families pay for emergencies and necessities.
Read on to discover what debt relief programs and financial resources are available for military personnel. Thank you for your military service.
Debt Relief for Veterans
There are many government, nonprofit, and private sector programs for service members and veterans. You can use them to get the debt relief you deserve.
Financial Difficulties and Security Clearances
The Uniform Code of Military Justice (UCMJ) establishes rules of conduct for service members’ behavior. One rule is about keeping your finances in order. If you apply for a job requiring a security clearance, the military will review your personal finances and credit report. To advance your military service, get promoted, and receive pay raises, you need to have your personal finances in order.
The military considers your personal finances for security clearance because they want to make sure you’re not susceptible to bribery. The military also considers your personal financial situation to see if you’re reliable and use good judgment. Having too much debt or not managing debt well can cost you your security clearance as an active military service member. Excessive personal debt is the leading reason military personnel have their security clearance denied or revoked.
A debt management plan can go a long way to help you get or keep a security clearance. Filing for bankruptcy doesn’t necessarily disqualify a member of the armed forces from having security clearance. In some cases, filing for bankruptcy protection is a positive because it shows your willingness to get the financial assistance you need. Entering a debt relief program could also be a good strategy for active-duty military personnel to protect their security clearance. The last thing members of the military should do is fall behind on their monthly payments and not address their debt problems head-on.
Financial Assistance Programs for Military Service Members
There are many federal laws and programs to help our military community. Many businesses, lenders, and nonprofit organizations also offer special programs for service members, military families, and veterans. Some of the major ones are listed below.
VA Home Loan Program
The Department of Veterans Affairs (VA) offers a home loan program for service members, veterans, and eligible surviving spouses. The VA guarantees a portion of the loan, so lenders can offer you better loan terms. VA-guaranteed loans are available to active-duty service members and their spouses and/or dependents.
VA home loans have many benefits, including:
There’s no down payment required. That said, some lenders may require certain borrowers to have a down payment even when using the VA home loan guaranty.
Interest rates are low, often lower than what civilians can get with conventional home loans.
Closing costs are limited.
There’s no private mortgage insurance (PMI), regardless of your down payment amount.
It’s a lifetime benefit that you can use multiple times.
The VA home loan program also offers an Interest Rate Reduction Refinance Loan, which helps people refinance an existing VA loan to get a lower interest rate or to change an adjustable-rate loan into a fixed interest rate loan. The VA offers financial counseling tohelp veterans avoid foreclosure during times of financial difficulty. VA loan technicians can also help veterans avoid foreclosure.
The VA’s Cash-Out Refinance Loan allows you to take cash out of your home equity. It’s risky to borrow against the equity in your home though. Your house is used as collateral for the new Cash-Out Refinance loan. If you can’t make the payments on the new, likely higher loan amount, you may face foreclosure.
If you use the VA home loan program, the lender will generally look at your previous 12 months of credit history. The lender will look further back at your credit history if they discover a bankruptcy, tax liens, or collection accounts.
Servicemembers Civil Relief Act (SCRA)
Federal laws are in place to ease military service members’ financial burdens while in active military service. These laws are written in the Servicemembers Civil Relief Act (SCRA). Under the SCRA, service members have many rights. Some protections also last for a short period after military service ends. Using your SCRA rights to delay payments, prevent repossession, or limit interest rates won’t be reflected on your credit report or hurt your credit score.
One important protection is that the SCRA caps the amount of interest that a lender can charge on many loans to 6% per year. This applies to auto loans, mortgages, student loans, and credit cards you took out before your military service began.
The SCRA also provides protection against default judgments, eviction (in certain circumstances), vehicle repossession without a court order, and non-judicial foreclosure. For vehicle repossessions, lenders can’t repossess a vehicle without a court order as long as you put a deposit on the vehicle or made at least one monthly installment payment before entering military service. Similarly, with foreclosures, lenders must get a court order before foreclosing on a mortgage if you’re in active military service or you’re within one year of your military service ending.
Under the SCRA, you’re also allowed to end a lease agreement without penalty in certain circumstances. And if there’s a lien against your property, the lienholder can’t sell your property without a court order during your military service and for 90 days after your service ends.
Joint Federal Travel Regulations
The Joint Travel Regulations (JTR) establish certain allowances for Uniformed Service members who need to move due to a foreclosure or eviction. Under the JTR, the expenses for certain local moves are covered if a service member has to move due to a foreclosure on a rental house while under a lease.
Military Lending Act of 2006
You can’t be charged an annual interest rate higher than 36% on most consumer loans under the Military Lending Act (MLA). This cap applies to credit cards, payday loans, tax refund anticipation loans, and vehicle title loans.
Under the MLA, creditors also can’t require you to submit to mandatory arbitration or give up other consumer protections under state or federal laws designed to protect military service members. Creditors also can’t force an allotment, which is money that’s automatically taken from your paycheck to repay a loan. Finally, your lenders can’t charge a penalty if you pay back a loan early.
Debt Relief Through Bankruptcy
A successful bankruptcy case can erase many types of unsecured debt, including credit card debt, medical bills, and personal loans. It also stops creditors’ collections. Many filers come out of bankruptcy debt-free. Individuals and married couples usually file Chapter 7 or Chapter 13 bankruptcy. There’s no special bankruptcy chapter for military families or veterans.
Chapter 7 bankruptcy is the quickest and simplest form of bankruptcy. It erases most unsecured debts, allows filers to keep property and personal belongings valued up to a certain amount, and doesn’t require a repayment plan. Chapter 13 bankruptcy is more complex. It offers all of the protections of Chapter 7 plus a few additional benefits. In Chapter 13 bankruptcy, your debts are reorganized and you repay them with a repayment plan that lasts three to five years. This may be especially useful if you have a lot of secured debt and want to keep your home or vehicle.
Having a bankruptcy on your record doesn’t mean you can’t get or keep your security clearance. And it’s still possible to advance your military career and security clearance if you’ve filed for bankruptcy. You may be required to explain the circumstances that led to bankruptcy and why you chose to file. Alternatively, you may have to explain high debts, negative credit reporting, and missed payments. It’s better to explain how you’re handling your debt problem, such as by filing for bankruptcy, than to not address the problem at all.
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Sources of Debt Relief Help for Veterans
There are many other sources for veterans struggling to make ends meet after leaving military service. Military OneSource from the Department of Defense offers free, confidential help via phone or chat 24/7. You can get help on a range of topics, including financial counseling. Military OneSource offers help with managing money and provides strategies for consolidating and paying down debt.
Operation First Response serves all branches of our nation’s wounded heroes/disabled veterans and their families with personal and financial needs. The Coalition to Salute America’s Heroes provides post-9/11 disabled veterans with emergency financial aid and support services. Financial aid from these organizations varies on a case-by-case basis and can include help paying rent, mortgage, utility bills, or vehicle payments, or help buying groceries, clothing, or other necessities.
Other helpful resources for veterans facing financial difficulties include:
USA Cares Veteran & Family Support System offers a Financial Education & Empowerment Program. USA Cares also runs programs for housing assistance, emergency assistance, and career transition assistance.
The American Legion runs programs to help veterans find meaningful careers, get education and healthcare services, and have stable homes. It also offers support services as well as cash grants for eligible families in need.
Disabled American Veterans (DAV) provides a lifetime of support for veterans of all generations and their families. DAV helps disabled veterans file benefit claims, assists with VA home loans, and is a leader in connecting veterans with meaningful employment.
The VA’s list of debt management resources and FAQs. The VA resumed debt collection activities in October 2021. As of February 2022, the VA has established a new, higher threshold for reporting debt on your credit report and additional resources for helping people manage VA debt.
Debt Management and Credit Counseling Programs
If you’re active military or a veteran, you may qualify for free credit counseling services. Nonprofit credit counselors help you understand all of your debt relief options from bankruptcy to a debt management plan. When selecting a credit counselor, make sure they’re accredited by either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
If you just need help getting your debt payments under control and not missing any payments, a debt management plan may help. Under such a plan, you make a monthly payment to the credit counseling agency that then distributes payments to your creditors. Accredited credit counseling agencies usually offer a lower interest rate and help you pay off your debt over three to five years. Note that this isn’t the same as for-profit debt settlement services, which are often ripe with scams. Keep in mind that you can do (for free) any of the paid services that debt management or debt settlement companies offer.
Debt Consolidation Loan
Another veteran debt relief option is a debt consolidation loan. These loans are available to consumers with good credit histories and favorable credit scores. When you take out a debt consolidation loan, you use the funds to pay off debts like personal loans or credit card debt. Then you only have to make one monthly payment on the new loan, ideally at a lower interest rate. Debt consolidation is a popular option for addressing debt problems, but it isn’t the best solution for everybody.
There’s not a special military debt consolidation loan but generally, active-duty service members, military families, and veterans can find lenders that cater to their needs. Give special consideration to lenders dedicated to the military community, such as Navy Federal Credit Union, USAA, PenFed Credit Union, and other military-focused financial institutions.
Debt Settlement Program
Debt settlement is when you settle a debt for less than the full amount you owe. Typically you’ll need to pay with a lump sum payment when you settle. Since the IRS considers forgiven debt as income, debt settlement can create tax liabilities. Debt settlement works well if you have only a few creditors and access to a lump sum of cash.
For-profit companies that offer debt settlement programs aren’t always on the up and up. You have to watch out for scams. Debt settlement companies operate by collecting a monthly payment from you, taking fees off the top, then using the accumulated payments to settle with your creditors that are willing to settle and willing to negotiate with a debt settlement company.
Be cautious when a debt settlement company tells you to stop making your monthly payments. When you fall behind on your payments, it does make settling the debt more likely, but it also harms your credit report and credit score. You can also be sued for nonpayment of debt during this time. Falling behind on your monthly payments can also impact your security clearance.
There are many active-duty military and veteran debt relief options. If you're a military member who needs help getting your finances in order, you may want to start with credit counseling. You can also consider a debt management plan, debt consolidation, debt settlement, or bankruptcy. Be sure to research any debt relief company or credit counseling organization you consider hiring.