If you or a spouse is in the military or a veteran and you need debt relief, you’re probably wondering if there are any special programs available to you. The good news is yes! There are numerous methods for getting relief from debts that are difficult to repay.
For many veterans, their homes can serve as a financial tool for debt relief. But others may not own a home, closing the door to certain types of debt relief programs from the VA. To help you understand your full range of options and what you may qualify for, we’ve put together this quick and easy guide to debt relief options for the military, veterans, and their families.
Military and Veteran Debt Help
Here’s a comprehensive guide for military, veterans, and their families to become debt-free. Call us to learn about the options available to you!
Servicemembers Civil Relief Act (SCRA)
When the Servicemembers Civil Relief Act (SCRA) was enacted in 2003, it helped spouses of active duty service members with their household financial needs if they have loans they’re falling behind on. The loans can be in either the service member’s name or in both spouses’ names.
While on active duty, the SCRA caps interest rates on the service member’s credit card, mortgage, and certain other loans at only 6% per year. The SCRA also protects a service member and his or her spouse from eviction, foreclosure, and/or forced sale of a home. It also limits the ability of a health or life insurance company to terminate their policy, along with protecting a military family from impending bankruptcy proceedings.
Unfortunately, SCRA benefits essentially end if the service member dies while on active duty. But, the Department of Defense (DoD) and the Department of Veterans Affairs (VA) still provide many benefits for surviving spouses and their children.
Military Debt Consolidation Loan
When members of the military experience a financial crisis, even if only temporary, debt relief is available, especially for those with a VA loan on their home.
Having a VA Loan qualifies service members for a Military Debt Consolidation Loan (MDCL), also called a VA Consolidation Loan, that can be used to alleviate financial difficulties. The MDCL works like a regular debt consolidation loan, where you take out one loan to pay off all unsecured debts like credit cards, medical bills, or payday loans. There’s only a single monthly payment to one lender rather than multiple payments to numerous creditors.
A Military Debt Consolidation Loan is considered a “cash out” refinance loan. These work by refinancing your current loan for more than your current balance and getting the difference back in cash. The funds are then used to pay down debts that have higher rates.
An MDCL enables you to pay a lower interest rate than civilians and far less interest than credit cards. These loans can be stretched out over 10, 15, or even 30 years, drastically reducing your total monthly debt obligations.
Keep in mind, there are closing costs involved, which will be deducted from the final amount you receive, so shop around for the best deals.
A major limiting factor with this type of debt relief is that the new loan value can’t exceed the appraised value of the home. Also, there are limits on how often a new VA loan can be taken out.
The biggest drawback to a MDCL is that you’ll no longer have as much equity in your home, along with taking on more debt overall due to closing costs. This increases the risk of losing your home if you can’t repay the loan, along with limiting your ability to sell your home when you want to.
Drawbacks Of Using An MDCL For Debt Relief
You will have to meet certain qualifications to get approved for this type of loan. Lenders still have to take into account your income and credit score to determine eligibility.
Another significant drawback is turning unsecured debt into secured debt. If you can’t repay your credit cards, the bank can’t come and take your property as repayment. But with a mortgage, the bank can take your home if you don’t repay the loan as agreed.
Debt Relief Methods For Service Members Who Don’t Own A Home
If you’re a service member who doesn’t own a home and therefore can’t access a VA cash-out refinance loan, there are still ways to get debt relief.
Credit Card Balance Transfers
If your debt problem mostly involves credit cards and you have good or excellent credit, you might qualify for a credit card balance transfer that comes with savings. Several banks and card companies offer 0% interest on credit cards for introductory periods ranging from 12-18 months. Although many have a transfer fee of around 3%–5%, if you pay off your balance during the introductory rate period, you’ll still get ahead for much less out of pocket.
Another option for debt relief is seeking help from a nonprofit credit counseling agency. You may be able to reduce your interest rates and monthly payments through a debt management program, without needing an additional loan. The drawback is you’ll need relatively good credit to qualify for this type of help.
Professional Debt Settlement Companies
If you are not a homeowner and don’t qualify for balance transfers to low-rate cards, debt settlement could be another option for you. This entails negotiating your unsecured debts for a reduction in the total amount owed.
The easiest and most effective way to go about settling your unsecured debts like credit cards, medical bills, or payday loans is with the help of a reputable debt settlement company, like Alleviate Financial.
While you do have the right to negotiate with creditors yourself or hire an attorney, most people find a debt settlement firm brings the experience necessary to get the best settlement agreement. A good debt settlement firm will carefully walk you through the process and answer any questions that may arise along the way.
We Help Veterans And Service Members Settle Their Debts
Alleviate Financial is here to help your military family get back on track financially. Contact us today and learn what your options are so you can become debt-free.