Several factors contribute to the high rate of debt among veterans. One of these factors is that members of the military are young and have little to no financial experience. Some military families also relocate frequently, which means one of the spouses has to leave work.
Being that it takes time to find work and re-adjust, such couples are forced to survive on one source of income. Another challenge that veterans face is difficulty finding jobs in the private sector once they complete their service.
Benefits of veteran credit cards
Depending on the type of credit you take, you could enjoy specific benefits, including the ability to carry out foreign transactions, getting cash advances, and you may get to pay zero annual and balance transfer fees. All these incentives can help you save on your credit card bill.
Veterans are more likely than civilians to be poor money managers. According to a survey by the National Federation for Credit Counselling, members in the military had an unsecured debt exceeding 7% of the percentage of civilian expenses. Further, they spent $200 more on debt expenses every month. Therefore, as a veteran, you need to manage debt so that it does not spin out of control. Below are some of the ways to do that.
- Transfer credit card debt
If you have problems repaying your credit card debt, you can transfer the balance to another credit card with a lower interest rate. The transfer usually comes with fees of about 3-5%. With the transfer, however, you can take advantage of the 0% interest rates that several banks offer on credit cards for up to 18 months. Paying your debt within the 18 months can be a way to save up on extra expenses.
- Use a military debt consolidation
Another way to deal with your financial challenges as a veteran is to take a VA consolidation loan or an MDCL (Military Debt Consolidation Loan). If you have a VA loan on your home, you qualify for an MDCL. These loans are called cash-out loans because you will refinance your loan based on the amount owed and pocket the difference after deduction of the necessary expenses. The new loan cannot exceed the appraised value of your home.
The MDCL is the same as the usual debt consolidation in that you take one loan and instantly repay all your debts, and then make payments to a single lender with a low-interest rate rather than dealing with multiple creditors. The closing costs for the MDCL loan are also lesser than those that civilians pay. Moreover, you can repay your refinancing loan over 10-30 years, which gives you a wide range of repayment choices.
Drawbacks of MDCL
One of the main disadvantages of MDCL is that you lose equity in your home. The closing costs you pay will also depend on the lender. You should also meet certain pre-qualifications to qualify for the loan. These include your income and credit score.
- Get into a debt management plan (DMP)
A debt management plan is a program in which a debt management company will work with your creditors to help ease the process of paying off your debt. If you qualify, the debt management company can help to reduce your interest rates, reduce or waive penalties, and arrange for a more convenient repayment schedule. With a DMP arrangement, you can take up to 60 months to repay your debt.
If you want to consolidate your credit card loans without taking a loan, a debt management plan can help you achieve that.
Drawbacks of DMP
The major drawback of a DMP plan is that you may receive restrictions that will disallow you to apply for more credit when you are still in the plan. Further, if you make your payments late, you will lose your progress on lowering your debt, fees, and interest rates.
- Use a repayment plan
If you have willfully or inadvertently missed a few payments, you can get into an agreement with the creditor in how you will resume payment. You can begin to make payments with extra amounts each month until you have cleared off all your payments.
Hopefully, the above methods will help you handle your debt wisely.