Top Tips For Veterans On Debt Consolidation Loans
It’s an unfortunate truth that ex-service members typically carry more debt than the average American. Over half of veterans report that they feel financially ill-equipped when entering into civilian life.
Keep reading for five tips that all ex-service members can follow to help them gain control over their finances. Moreover, these tips can help with reducing or eliminating a debt load.
Watch Your Credit Score
When an individual is an active service member, lenders don’t consider their credit score in the same way it does for civilian borrowers. This is because the Department of Defense can guarantee certain types of loans for military personnel. Because of this, those who are in active duty may not pay much attention to their credit score. Active service members also miss payments and leave debts to build up.
As a civilian, one’s credit score is the single most important factor that lenders use to determine if an individual qualifies for a loan or not. Veterans who let their credit score slip when they were in the military may need to repair their score in order to qualify for new debt.
Be Careful With Credit Card Debt
Credit card debt is the most common form of unsecured debt amongst Americans. The average consumer carries a balance of just under $7,000. It’s also the most commonly consolidated type of debt and can be very troublesome for some individuals.
This is even more true for ex-military personnel because the Servicemembers Civil Relief Act limits the size of the minimum payments and interest rates for all active-duty members. Those in the military are often required to make smaller payments than their civilian counterparts.
While this does offer some relief for military men and women, it can create major issues for individuals once they switch to civilian life. The greatest issue is that both the interest rate and payments will increase. Because of this, it’s important to pay extra close attention to payment dates and amounts. Just a few missed payments can result in serious damage to one’s credit scores.
Be Aware Of Loan Risk Levels
Ex-military members are nearly 50% more likely to use high-risk loans, such as those from payday loan lenders and pawnshops. This is usually done out of desperation to make a bill payment or pay off any outstanding balance. While this may seem like a reasonable option at the moment, it rarely is. High-risk loans typically carry extremely high-interest rates, which can more than double the overall cost of the credit and leave the borrower in what is commonly referred to as ‘the payday loan cycle’.
Those in this situation are much better off applying with one of the several online lenders that are willing to work with individuals with fair or poor credit.
Check With The VA For Help
Ex-service members have access to several consolidation loan options through the VA, the most common of which is the Military Debt Consolidation Loan (MDCL). An MDCL is a cash-out refinancing of one’s current debts that operates very similar to a normal consolidation loan only guaranteed by the VA. The only downside to this option is that it’s only available to homeowners.
Those that don’t own their home do have access to another type of consolidation loan through the VA, but the closing costs and interest rates are much higher than those associated with an MDCL.
The VA also offers veterans access to non-profit credit counseling services that can help individuals develop a functional budget, negotiate with credit card companies for reduced rates, and secure a consolidation loan.
Free Financial Consulting
Those who have Veterans Group Life Insurance may have access to free financial counseling services. These services can help an individual gain an overview of their current options and see realistic timelines for paying off their debts. It may also inform them of different loan products that they weren’t previously aware of, such as balance transfer promotions and credit settlement.
The Bottom Line
Ex-service members who enter civilian life often report issues with debt. They may find it difficult to make their minimum payments and may feel as if they’ll never get out of debt. With the right consolidation loan and proper planning, anyone can get out of debt and be back on the road to financial freedom.