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Members of the Military & Debt – Trends, Repayment, and Options

Members of the military make sacrifices that many Americans cannot fathom – living far from loved ones in combat zones, and much more. But military personnel’s finances aren’t that dissimilar to civilians, and in fact may be worse. An alarming 2010 study conducted by the Financial Industry Regulation Authority showed that members of the military and their spouses tend to be heavier credit card users than non-military. More than 25 percent of respondents reported having over $10,000 in credit card debt, while 10 percent had $20,000 or more in credit card debt. Many respondents have trouble making ends meet month-to-month and have resorted to payday loans.

In addition, the Department of Defense has stated that excessive or delinquent debts are the number one reason for denying or revoking security clearances, which could affect nearly 36,000 active military who hold those clearances. Issues with debt can even lead to a bad-conduct discharge from the military – if you can’t pay your bills on time, can you really be trusted with national security?

Why are members of the military at risk for getting into consumer debt? There are a few reasons that may contribute to this growing trend.

Paychecks are relatively small. Though military pay is consistent, the paychecks are generally fairly low. For those active military with families or larger expenses, a small paycheck has to be stretched in many different directions. In order to bridge the gap of living paycheck to paycheck, people may turn to credit cards, personal loans, or other forms of credit.

Moving frequently can be an expensive endeavor. Though military personnel and their families may be eligible for relocation reimbursement through their given branch of the military, it can still be financially costly. For example, spouses and partners of active military who relocate frequently may find it difficult to obtain or hold down employment. In addition, service members who own property or homes may have trouble selling their homes, which contributes to the debt burden. However, the Homeowners’ Assistance Program of 2009 came about to help alleviate this burden for those ordered to relocate permanently under their service.

Creditors seek out active military. The credit card industry frequently targets active military over non-military. This is because active military have a steady income that is guaranteed, and members of the military cannot have their debts settled like civilians can. Many deploying military may find themselves with credit offers in their mailboxes and inboxes. For those who do not have experience holding or managing debt, this can start a bad trend of utilizing debt.

Military spouses or partners may forget to make payments. One missed payment, regardless of whether you’re military or civilian, can negatively impact your credit and result in an increased interest rate. If a member of the military is deployed, his or her spouse/partner has to shoulder all financial responsibilities. The stress of managing a home, the finances, and possibly a job of one’s own – along with having a loved one deployed – may mean a missed payment.

Pride and fear can make it hard to seek help when in debt. Security clearance may be at risk if you’re found to be delinquent on your debts or holding too much debt. Getting help could jeopardize not only security clearance but also a military career. Many keep quiet about their debts to avoid drawing attention to themselves, which typically leads to even more debt.

Options for Members of the Military

However, this does not mean that all hope is lost for members of the military. Congress passed the Servicemembers Civil Relief Act (SCRA) to help active military who may not be able to respond to lawsuits or foreclosure actions within the appropriate timeframe. The SCRA also acknowledges some of the unfair credit industry practices that target military personnel and their families.

The SRCA covers active service members in the Army, Navy, Air Force, Marine Corps, and Coast Guard. It also covers reservists, members of the National Guard, U.S. citizens serving with foreign allied military forces, and active service commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration. http://www.justice.gov/crt/spec_topics/military/scratext.pdf

Under the SRCA, active duty military personnel may be eligible to:

  • a six (6) percent cap on interest rates for debts provided that the debt was incurred prior to military service and a written request has been submitted to each creditor
  • a right to get out of residential and commercial leases
  • delayed eviction for up to three (3) months, provided that your spouse or dependents occupied the rental unit during military service and where rent is $2,400 or less per month
  • delay on foreclosure actions, which may not be brought against active military or for 90 days thereafter unless issued by a court order or waived by the military member
  • delay on divorce proceedings if military personnel can show that active status makes appearances impossible
  • prevent tax bracket increases when a service member’s military income and a nonmilitary spouse’s income are combined in one household

If you are sued and you fail to appear in court, a default judgment may be ruled in your absence. If this is the case, you must notify the judge of your active status and under SRCA you may be able to reopen the case later. The SRCA also prohibits repossessions that lack a court order, and you may be able to apply for a stay of repo proceedings. There is an exception to this for car repossessions; your auto loan lender does not need to get a court order if you signed a waiver.

A creditor who violates the SRCA may be subject to both criminal and civil penalties. For example, you may be entitled to sue the creditor for damages and attorney fees.

Student loan debt incurred prior to military service can be overwhelming. Active, full-time military can have remaining balance on their student loans cancelled after 10 years of service, provided that they make 120 on-time monthly payments in full. Military members may also be eligible for income-based or income-contingent student loan repayment plans. Individual branches of the military may allocate additional student loan relief on certain conditions or for service in the line of fire. The GI Bill benefits may not be used to pay down student loans, but some branches of the military may provide student loan payment assistance if you forego the GI Bill at the time you enlist.

The Department of Defense also enacted a new initiative in 2007, the Military Lending Act (MLA), to cut down on predatory lending. The MLA limits the fees and interest that lenders can charge on payday loans, tax refund anticipation loans, and vehicle title loans to 36 percent APR.