Veterans and active military members face unique challenges and can struggle with debt for a number of reasons — they could be deployed, disabled, have lost a job or need to relocate. In some cases it could be credit card debt where you're just making the minimum payment, medical debt, falling behind on your home loan or missing payments to your utility or phone provider. No matter what the circumstances, dealing with any type of debt can be a significant strain on one's ability to manage their finances. Debt relief may be an option to assist military and veterans in those situations. Fortunately, there are a number of debt consolidation options, programs and protections available for veterans to help you get ahead of these financial challenges.
Military consolidation loans.
Military Debt Consolidation Loan (MDCL), also known as a VA Debt Consolidation Loan, allows you to take out equity from your home to pay off debts such as credit cards or medical bills. A military debt consolidation loan is like a cash out refinance in that you refinance your current mortgage for more than you owe and take the difference in cash to cover any debt or expenses. You must have an existing VA loan to be eligible and have sufficient equity in your home.
Pros of a VA debt consolidation loan:
- You pay a lower interest rate than you would with other debt
- You have a variety of term choices and repayment options
- You may be able to greatly improve your monthly cash flow
- It may make the interest on your debt tax deductible, consult your tax advisor for details
Cons of VA debt consolidation loan:
- You lose some equity in your home
- You will need to pay closing costs
- This moves unsecured debt (credit cards) and turns it into secured debt and your home is used as collateral should you default
Other military personnel protections
There are other laws in place to protect active duty military and veterans, including:
Homeowner's Assistance Program (HAP). This program offers financial aid for those qualified who may have to sell their home at a loss.
Military Lending Act. The MLA applies to active duty military personnel. The law places a cap on the amount of interest and fees which may be charged on certain loans.
Servicemember Civil Relief Act (SCRA). Military members on active duty may be able to request certain debt relief under the SCRA. This includes a cap on interest rates and protection from eviction.
Taking advantage of VA loans and the other consolidation and relief programs provided by the government is a great benefit to those serving in the military. These offer protections and flexibility when you need it most.
If you are having trouble with your VA loan or looking for debt consolidation options, contact Freedom Mortgage and we can discuss some options with you.