Joining The Military With Debt

Setting off on a military career opens up a world of opportunity for those who choose to serve. But coming to the job with baggage in the form of unpaid debt or a low credit score can limit your options or maybe disqualify you altogether. Understand how to manage and talk about your debts and financial history before you talk to a recruiter.

Written by: Craig Richardson

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A military career can offer a fresh start and many opportunities. But significant amounts of debt and a questionable credit history can limit much of what’s available to you, including which branch you serve, your career choices and your security clearances.
Debt won’t prevent you from serving your country, but you should prepare yourself for dealing with your debt before, during and after your military service.

How Debt Can Affect Your Military Career

At the onset of a military career, you may be asked to complete a credit check through the Defense Counterintelligence and Security Agency, which is similar to a credit check used by civilian employers. While there is no cutoff for a credit score in terms of financial eligibility, a low score or history of excessive debt or delinquent payments could flag your application.

Once you’re in the military, you’ll have to continue to show that you can manage your finances. In short, you’ll be expected to pay your bills. Debt, and how you deal with it, is likely to influence your chances for advancement. For example, a low credit score or high debt-to-income ratio would likely stall your career and make it harder to meet the security clearance requirements when you apply or renew.

There is no standard approach among the military branches when it comes to screening for financial troubles among its applicants and members. The Air Force looks for a history of bankruptcy or bad credit and has a debt-to-income ratio limit of 40%. The Army, Navy and Marine Corps will typically run a credit check on an applicant who will require a security clearance or dependent (family member) waiver.

What to Know Before You Enlist

As with any job interview, joining the military means that you should be ready to talk about your history, including your financial track record. Prepare by knowing what is on your credit report and your credit score and then be ready to talk about any discrepancies like late payments or unpaid debt. Also, be ready to discuss your debt as it relates to your potential military earnings, known as debt-to-income (DTI) ratio, and whether your income will be  sufficient to cover your debts.

Your Finances Will Be Reviewed

If you’re considering a military career, then you should have your financial house in order. No matter which branch you choose, there will be some review of your financial history to look for potential problems. The review could include a full credit check and an analysis of your debt-to-income ratio.

Your Credit Score and Credit History

There’s no quicker or easier way to understanding how someone handles their money than examining their credit score and credit history. Any sort of financial hiccup, from a single late payment to something more telling like a bankruptcy or vehicle repossession, help shape the report and your overall score. Remember, military branches do not have minimum credit score requirements, but a low score could flag your application and slow or disqualify you from service or positions with required security clearances. Improving your credit score before you talk to a recruiter is one way to show that you’re on a path to solid financial ground.

Debt-To-Income (DTI) Ratio

Some branches will also want to be sure you can meet your financial obligations once you are collecting a military paycheck, achieved by calculating a debt-to-income (DTI) ratio. For example, the Coast Guard wants recruits to have a DTI of no more than 30% while the Air Force allows 40%. Paying off debts – and therefore, lowering your DTI ratio — prior to visiting a recruiter could mean more options for you in your military career.

How to Prepare to Join the Military With Debt

A military career offers new career opportunities, but you should have a plan for how to manage and tackle your debt once you are on your way. For starters, set a budget and stick to it with on-time payments. Also, talk to your creditors to let them know about your new career path and take advantage of tools like the Servicemembers Civil Relief Act. With planning and communication, you can maybe even save money while you pay down your obligations.

Set a Budget

Setting and maintaining a budget is key to financial responsibility and will ensure you are not overspending and able to cover your expenses. Further, a writing up a budget will illustrate and help you understand just how much of your income is being used to service your debts and what is left for your interests and other pursuits.

Notify Your Creditors

Joining the military is a significant change in your  work status, and a creditor might be willing to help your financial picture if you take the time to make them aware of your change in circumstances. Some creditors may extend special benefits like discounts, lower interest rates or debt reduction offers to military personnel, so make sure to alert them to your new career path.

Keep Making Payments

After your military career begins, be sure to keep paying off credit-card debt and your other expenses. Take advantage of tools from your bank or credit union like automatic payments to help ensure your creditors always receive the proper amount without delay.

Understand The SCRA

Military personnel have a powerful and money-saving tool in the form of the Servicemembers Civil Relief Act. The SCRA caps any interest rates on loans you had prior to enlisting at 6%, including credit cards, auto loans, mortgages and more. The only catch is that you have to apply for the preferential rates by contacting your lenders directly.

Can You Be Discharged for Failure to Pay Debt?

Creating or ignoring a debt problem can definitely derail a military career, make it harder to get or maintain a security clearance and maybe even get you kicked out of the military. Further, as a military member and a condition of your employment, the Uniform Code of Military Justice (UCMJ) requires that you pay your debts (spelled out in Article 134). Those who opt to deliberately avoid a debt, whether by deceit, evasion or worse, could ultimately see their career end by way of a bad-conduct discharge, which could include forfeiture of all pay and allowance and confinement for up to six months.

About The Author

Craig Richardson

Craig Richardson is a military veteran who started his journalism career while serving in the Navy. Following overseas deployments to the Med and Middle East, including service in Operation Desert Storm, he left for the private sector but continued with journalism. He has worked for several publishers and news organizations over nearly 30 years and continued to cover stories with ties to veterans and military affairs throughout his career.


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