Military Debt Consolidation Loan: Your Comprehensive Guide

Imagine this: you and your family move to a new town for work and settle into your routine. Within the next two years, you must relocate your family again because of your work commitments. This happens again and again for the rest of your professional life. Moving around a lot, in addition to the challenges of everyday life, can be tough to handle. Well, this is the normal life of a service member and their family.

As a service member, you encounter numerous challenges, including managing debt. Military families often move around a lot, and with these sudden moves come possible accrued debts. It can be safe to assume you don’t have time to manage your debts, given all your responsibilities. The expenses of having to uproot your life can be expensive. Fortunately, a military debt consolidation loan is here to make your life so much easier.

Reading this article will provide valuable advice on saving money and handling your debts responsibly. You will be able to better manage your financial obligations with our tips on reducing debt-related stress and improving your credit score.

Types of Debts Commonly Accrued by Military Personnel

Like most people, military personnel are obliged to deal with monthly payments. Some of the common types of debt service members deal with include the following:

Credit card debt. Credit card debt is an unsecured debt that is incurred through revolving credit card loans. The debt grows through the accrual of interest rates and penalties. If this spirals out of control, this can be a substantial financial burden for military personnel.

Personal loans. A personal loan is money you may borrow from a financial situation like a bank or direct lender. Unlike credit card debt, personal loans have a set repayment period and consistent monthly payments. Most personal loans are unsecured, which means military personnel don’t need collateral for this loan. A personal loan can be helpful to service members in case of big purchases or school expenses.

Auto loans. Many military service members also get into debt because of the vehicles they purchase. Owning a personal car can be convenient for military families to travel easily. Understandably, not everyone has the financial capacity to buy a car with cash. Auto loans enable service members to finance this major financial commitment.

Student loans. Did you know you can enlist in military service until you’re 39? Before you serve the nation, there might have been a time when you went to college and took out student loans to finance your studies. While one of the major perks of military service is possible debt relief, this doesn’t necessarily mean your entire student loan debt will be forgiven or paid for. Thus, it is still common for some service members to be burdened by student loans.

What Are Military Debt Consolidation Loans?

Fortunately, being part of the US military has many perks, which include military debt consolidation. Also known as VA Consolidation Loan, a Military Debt Consolidation Loan (MDCL) is a special cash-out loan. It can help military personnel manage their financial situation better.

Through debt consolidation, veterans can finance their current outstanding loans for more than the amount owed and take the difference in cash. A debt consolidation loan also incurs closing costs, which are subtracted from the amount a service member receives.

A military debt consolidation loan works similarly to regular debt consolidation loans. Through this debt management program, you’re consolidating debt by taking out a single loan. The debt consolidation loan pays off unsecured debts, like credit card debt, payday loans, and medical bills. From there, you must commit to a monthly payment plan to a single lender, making it easier to manage your finances.

How They Work

If you’re already familiar with the concept of debt consolidation, you won’t have difficulty understanding how military debt consolidation loans work. What makes this debt management program unique is that instead of using that money to buy a particular service or product, the funds you receive are allocated to outstanding bills. You are then tasked to repay the loan, with interest, to the financial institution or entity that consolidated your debt on your behalf.

Let’s say you have incurred several bills, including credit card debt, student loans, and the like, which amounts to a total of $7,000. All these debts can cost you thousands of dollars, which may take years to repay. The final cost increases even more once you factor in late fees, interest rates, and other charges.

With the help of a military debt consolidation loan and approval from your selected lender, you can receive the appropriate amount of funding needed to pay off your creditors in full. You’re then tasked to pay the chosen military debt consolidation lender. This debt relief assistance provides flexibility, convenience, and simplicity to lower your monthly payment commitments, which, in turn, may help you save thousands of dollars in the process.

If you’re struggling with the interest rates of your credit card bills, this program can greatly assist in managing your finances. You won’t have to consider your obligation to pay various entities because you only have one monthly payment.

Advantages of Military Debt Consolidation Loan

With the help of a military debt consolidation loan, you will finally be able to pay off the outstanding debt hovering above your head. Nothing compares to the relief of knowing you won’t have to worry about monthly payments. However, the benefits of getting a military debt consolidation loan don’t stop here.

Here are some benefits you can get from debt consolidation:

Turning Various Bills Into a Singular Payment

One of the many perks of debt consolidation is that you spare yourself from getting overwhelmed by all your debt from multiple creditors. Through a debt consolidation loan, you can effectively streamline your existing debts. You will only have to pay one debt every month, which is more manageable than dealing with five or more entities.

Getting More Money While Paying Less

Generally speaking, the closing costs and interest rates are lower regarding a debt consolidation loan. On the other hand, the payment terms and overall expenses may be better when you apply and get approved for a military debt consolidation loan. Access to more funding increases your purchasing power to allocate to other costs. This is also an excellent protection measure against financial emergencies.

Highly Competitive Rates

Compared to most debt consolidation loan options, a military debt consolidation loan allows you to enjoy the most manageable payment terms. There are usually lower interest rate options than payday loans or debt-relief options. Suppose you’re an active duty service member. In that case, you may be covered by the protections of the Servicemembers Civil Relief Act, which stipulates that you will only have to pay a maximum of 6% interest rate.

Improved Credit Score and Financial Well-Being

You must always pay your bills on time or before the designated due date to improve your credit scores. Many military members fail to adhere to this because of their busy schedules and more pertinent commitments. Consolidation loans offer flexible debt management, which can make increasing your credit score and getting approval for future loan options easier.

Simplified Monthly Budget

Through the assistance of debt consolidation, it would be easier for you to set a more feasible monthly budget. After all, you would only have to think about paying a single debt every month. Hence, debt consolidation allows you to budget for other essential matters, like utilities and food.

Eligibility and Requirements

There are several requirements you must meet before you can apply for a military debt consolidation loan. Although this debt consolidation loan is relatively flexible, borrowers must still meet minimum eligibility requirements to take advantage of this financial option. Here are the requirements for your easy reference:

Certificate of Eligibility (COE)

This form confirms to your lender that you’re qualified for the loan benefit. Before you request a COE, you would need to gather the necessary information for your background. You need a copy of your DD214 if you’re a veteran. Current or former activated Reserve members must also present discharge papers to apply for a military debt consolidation loan.

If you’re an active duty service member, you would need a statement of service, which your commanding officer signs. That statement should contain pertinent information, including your full name, social security number, date of birth, date when you entered into active duty, any lost time duration, and the name of the commanding officer who provided all your information. If you’re a Reserve member who’s never been activated, you’ll also need a state of service.

If you’re a current or former member of the National Guard, you’ll need a DD214 copy. However, if you’re a National Guard member with at least 90 days of active-duty service, including at least 30 consecutive days, you would need any of the following:

• DD220 with accompanying orders
• Annual point statement
• DD214 that shows 32 USC sections 316, 502, 503, 504, or 505 activation

If you’re a National Guard member who was never activated, you would need a copy of your Report of Separation and Record of Service (NGB Form 22) for each period of service and Retirement Points Statement (NGB Form 23) along with proof of the character of service. Meanwhile, discharged reserve members who were never activated need to obtain a copy of the latest annual retirement points AND proof of honorable service.

Military spouses of a Veteran who died on active duty or had a service-related disability must present the Veteran’s DD214 and Request for Determination of Loan Guaranty Eligibility—Unmarried Surviving Spouses (VA Form 26-1817) if you’re receiving Dependency & Indemnity Compensation (DIC).

If you’re not receiving DIC benefits, you must send a completed Application for DIC, Death Pension, and/or Accrued Benefits (VA Form 21P-534EZ), a marriage license copy, and the Veteran’s death certificate.

Home Attached to the Loan

Given how military members move around a lot, this might confuse applicants. Essentially, you would need to supply your primary residence for this loan. This is the contact address wherein the lender will mail all the necessary communication. Moreover, the home must undergo an appraisal and pest inspection.

Credit Score of 550 or Higher

You need a good credit score to obtain a military debt consolidation loan. If you’re wondering, a credit score is a three-digit number that ranges between 300 to 850. By understanding the factors that impact your credit score, you can take the necessary steps to improve it.

Proof of Income

Like with any other loan, you need to be able to provide proof that you can finance the payments for a military debt consolidation loan. This can be through your bank or credit union’s payment slip or financial statements.

Service and Relationship With Military Members

Who is qualified to apply for a military debt consolidation loan? Not everyone in the military community is eligible for this particular benefit. Here are the ones that can apply for military debt consolidation:

• Veterans
• Active duty service members
• National Guard members (current and former)
• Reserve members
• Surviving spouse of a veteran who died in active duty military service or had a service-related disability

Choosing the Right Lender

Given how big of an impact debt consolidation has on your life, this isn’t a decision you should take lightly. There are many options you can explore in the market. However, you should be vigilant in thoroughly weighing your options to get the best possible deal within your financial capacity.

When choosing the lender for debt consolidation, you should consider factors such as interest rates, fees, and customer reviews. Looking through what past or current clients have to say gives you a preview of what to expect in the future.

Moreover, you shouldn’t sign the dotted line without trying to negotiate for the best terms. If you discuss with your lender your priorities and financial standing, they might be able to provide you with better options that you can manage.

How to Apply for Debt Consolidation Loans

Once you’ve obtained the necessary requirements for applying for a military debt consolidation loan, the process is relatively simple. Here are the steps to take to bring you one step closer to getting the loan that could change your life:

Prepare Your Financial Documents

Request the proper documentation from the appropriate institutions. This might take some time, depending on the papers you need.

Complete the loan Application Form

You should ensure that you read the instructions thoroughly so you understand what you’re getting yourself into. Read the fine print to avoid problems in the future. Double-check the form before submitting it to avoid any possible complications or delays.

Wait for the Approval

Unlike payday loans, obtaining a military debt consolidation loan may take some time. The process can take up to 30 days.

Debt Consolidation Tips for Service Members

If you’re interested in applying for a debt consolidation loan, you should follow these pieces of advice:

• Create a post-consolidation debt repayment plan. You must have an actionable game plan to pay off your debt successfully.
• Quit using your credit cards. Avoid temptation by opting not to use your credit cards for whatever reason.
• Build an emergency fund. You need to set aside some money for possible emergencies in the future.
• Seek financial counseling. Before you agree to any debt consolidation option, you should confer with a reputable financial advisor who isn’t trying to sell you a product.

Other Types of Military Financial Assistance Programs

Fortunately for military personnel who worry about monthly mortgage insurance premiums, there are other various options they can explore to offset the high-interest debt of accrued debt. Here are common ways to choose from:

Personal Loans

For this debt relief option, you can head to a bank, credit union, or online debt consolidation lender and ask for the amount you need to pay off your debt. Your chosen institution would then check your credit score and payment history. They then can approve or deny your loan.

Home Equity Loan

This type of loan has one of the lowest interest rates for a significant reason: you are putting up your home as collateral. If you miss several payments, you might lose your house or property. In return, you get interest rates as low as 6% compared to the average interest rate of 17.92% for credit cards.

Balance Transfer Cards

This option is attractive because you pay 0% interest for the introductory period, which is usually between 6 to 18 months. On the other hand, it may be challenging for people with existing credit card problems to qualify for a card with 0% interest. In addition, you must pay off your debt during the introductory period because the amount will skyrocket to 20% or higher afterward.

Non-Profit Credit Counseling Agency

If you think a debt consolidation loan is not the best fit for you, you can opt to head to a non-profit credit counseling agency. Their credit counselors can help walk you through the proper steps of setting up a monthly budget and provide feasible options for debt relief. One of the options they might offer you is a debt management program that doesn’t require a loan nor consider your credit score as part of the process.

This program can be an excellent way to eliminate debt, increase your credit score, and relieve stress from money problems. These counselors work with lenders so that you can get rid of your debt within 3 to 5 years.

Conclusion

Dealing with debt can be stressful for anyone, but a military debt consolidation loan can significantly assist in managing your finances. If you try to develop better money habits, you can repay your debt and live debt-free.

You shouldn’t hesitate to seek counsel if you need it. Explore the SCRACVS website further to learn more about life in the military and military verification.

FAQs

Can the military help pay off debt?

Yes, the military can help you manage your outstanding debt through lower interest rates. However, the military won’t settle your debt for you.

Does the military help with credit card debt?

Yes, the military assists current and former members in managing credit card debt. If you fall under the protections of the SCRA, you shouldn’t be charged more than a 6% interest rate.

Does the VA offer debt consolidation loans?

Yes, the Department of Veterans Affairs offers assistance so veterans can manage their debts better. Their offerings have better interest rates than most options in the market.