Military Debt Forgiveness & Programs for Debt Relief

Those who serve the nation do so knowing they will face significant mental and physical challenges. Unfortunately, military service does not make anyone immune to financial challenges, too, so it’s important for any service member to recognize that help is available and to know where that help can come from.

ZipRecruiter reports that top earners in the Army make $50,000-$55,000 per year and that average pay for an Army soldier is about $30,000. For those stationed far from home, financial difficulties – including struggling with mortgages, auto loans and credit card payments — can be part of a service member’s life.

Thankfully, there are public and private organizations and programs that can help veterans with managing debt, military debt forgiveness, military debt relief or even financial assistance. Some of these programs are available to service members only.

Risks of Excessive Debt in the Military

It’s generally best to stay out of debt. For those serving their country away from home or overseas, adding debt adds stress. Excessive debt while in the military also can lead to real-time complications in qualifying for certain jobs or even staying in the service.

The National Security Adjudicative Guidelines, updated in 2017, clearly state: “Failure to live within one’s means, satisfy debts, and meet financial obligations may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual’s reliability, trustworthiness and ability to protect classified or sensitive information.”

The reason the top brass is concerned about a member’s financial status? If you’re financially unstable, you could be targeted for a bribe. And not keeping your financial house in order may signal an overall lack of responsibility, something the military frowns on – so much so that debt issues can lead to loss of security clearances. That could lead to a lower-paying job.

One important fact to remember is that the military can and will pull your credit report if you are applying for a job that requires security clearance. A debt-to-income ratio that is too high could be a reason you are rejected for the job, or in the extreme could lead you to being kicked out of the military. Our armed forces stress readiness and responsibility.

The Uniform Code of Military Justice requires that service members pay their debts. Failure to do so could result in bad-conduct discharge, forfeiture of pay and allowances, and even confinement for six months.

Service members are held to the highest standards. Nothing comes ahead of the mission.

Programs to Protect and Help Military Members in Debt

A benefit of being in the military are the programs in place specifically designed to limit debt risks to service members and to help them dig their way out of debt.

These programs are not a punishment or burden. They can be a help to a veteran drowning in debt and are, in fact, a benefit of serving your country.

The Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA) gives those in the military extra protection if they encounter legal or financial situations that unnecessarily complicate their lives. The law is designed to allow those in the military to devote their energies to protecting and defending the country.

The law, passed in 1940 when it was called the Soldiers’ and Sailors’ Civil Relief Act, bans creditors from proceeding with foreclosures, evictions, garnishments, repossessions and other actions until 60 days after a service member leaves active duty.

Among its protections, the SCRA:

• Prevents your landlord from evicting you unless your rent is higher than $4,089.62 per month; this amount changes yearly to reflect market value
• Stops foreclosures without court order
• Stops vehicle repossessions without a court order
• Stops civil proceedings, including divorce and child support
• Prevents the owner of a storage facility from selling your goods without a court order when the rent on the unit isn’t paid
• Allows you to terminate cell phone contracts if you relocate for at least 90 days to an area that isn’t covered by your provider.
• Allows you to terminate vehicle leases signed before active duty if you are mobilized (PCS OCONUS) (Deploy OCONUS) for at least 180 days.
• Allows you to terminate a housing lease without penalty if you are deployed for 90 days or more.
• Limits all interest on loans taken out before active duty to 6%. To receive this benefit, you must notify your lender in writing with a copy of your orders to active duty, or provide a letter from a commanding officer.

The SCRA applies to members of the Army, Navy, Marine Corps Air Force, and Coast Guard; members of the Reserves on active duty; members of the National Guard mobilized by federal order for more than 30 days, and active-duty officers of the Public Health Service or National Oceanic and Atmospheric Association.

SCRA rights may be exercised by anyone with a valid power of attorney for the service member. Some rights apply to dependents.

Taking advantage of any of your SCRA rights to delay payments will not reflect on your credit report. The law was passed to help service members, not hurt them.

The Military Lending Act (MLA)

The Military Lending Act caps interest rates and fees imposed on military service members who resort to desperation loans —  loans that typically strangle consumers with high interest rates.

While the idea of a cap is a good one, the actual limit is still an extremely high rate of 36%, a rate that should be avoided at all costs. An interest rate of 36% could spiral out of control quickly. Its only benefit is it may be lower than what some non-service members pay.

The MLA covers:

• Payday loans
• Tax-refund anticipation loans
• Vehicle title loans

In short, it covers all loans that service members would be wise to avoid.

Joint Federal Travel Regulations

These regulations are designed to protect military personnel facing foreclosures or evictions. The program provides cash allowances to help with travel and transfers associated with landlord actions – i.e., to help a person return home if they are threatened by their landlord. These regulations relate to per diem travel, transportation allowances and relocation allowances.

Homeowners Assistance Program (HAP)

The Homeowners Assistance Program  provides financial aid to qualified candidates who have to sell their home at a loss or are not able to sell their home. The benefit program is available to active-duty personnel and veterans, civilian employees of the Department of Defense, and surviving spouses.

Credit Counseling

A nonprofit credit counselor can make a service member’s life easier. This counselor can provide debt relief guidance to struggling veterans, and active-duty service members and their families. Credit counselors are trained to provide support and guidance to those in need. Their goal is to help you reduce or, in the best possible world, eliminate debt altogether. It can never hurt to consult one.

Debt Consolidation

Debt consolidation is the process of combining all debt into one loan with a lower interest rate, then paying it off with one manageable payment that fits your budget. Anyone, including service members, who take advantage of this program must promise not to run up more debt while paying down the original bills. The better your credit score, the better the interest rate you could receive. The USAA and the Navy Federal Credit Union cater to veterans and active-duty members. In addition, service members can utilize Military Debt Consolidation Loans (MDCLs) or VA Consolidation Loans – provided they already have a VA loan of any kind.

» Learn More: Should You Pay Off Debt or Save for a House?

VA Loans for Home & Personal Use

Some lenders offer personal loans for veterans and active-duty service members – even those with bad credit. One of the most appealing factors of a VA loan is that it does not require a down payment.

Interest rates on a 30-year fixed loan can be as low as 3.5%, depending on your credit history. If your credit score is 620, you can get a loan for 4.25%. Military spouses and dependents also are eligible for financial assistance.

Personal loans can be used for any purpose, whether it’s paying off credit cards, buying a new car, or a home improvement project. In most cases, you can apply online and expect an answer in less than 24 hours. Some lenders have special rates for military, but restrictive conditions – approved credit score, direct-deposit checking account, and others – must be met.

Any veteran eligible for a VA loan has what is called VA loan entitlement. This basically is a dollar amount the VA promises to repay to a lender if you default on your mortgage. In short, the VA guarantees a portion of the loan, which is one of the reasons lenders are willing to offer these loans.

As of Jan. 1, 2020, VA borrowers with full VA loan entitlement have no limit on how much they can borrow with no down payment, and the VA will guarantee up to 25% of the amount of these loans.

Additional Military Debt Relief Options

Military members can find debt relief through organizations that have programs in place to help. These programs could provide financial assistance or other support benefits. Among them:

• The American Legion provides cash grants for families needing help with the cost of shelter, food, utilities, and health expenses.
• MilitaryOneSource offers free financial counseling to current and retired military members and their families.
• Operation First Response & Coalition to Salute American Heroes intervenes in emergencies such as utility shutoffs, foreclosure or eviction, vehicle payments, groceries, and food.
• USA Cares keeps post-9/11 veterans in their homes.
• Disabled American Veterans provides the resources disabled veterans and their families need.
• USA.gov provides resources and official information for active-duty military personnel.
• The VA Website offers numerous benefits, including health care, life insurance, pensions, home loans, survivor benefits and education benefits.

These programs exist to help those who serve our country. They are designed to limit debt risk and help service members dig their way out of debt.

Nobody should be afraid of taking advantage of these programs. They are in place for a reason.