Veterans and Servicemembers, Here’s How You Effectively Deal With Debts

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Debt reduction, together with savings, is where annual pay raises of career military families go, according to a First Command study back in April. No surprise there as debts remain a universal problem whether you’re an active duty servicemember, a veteran, or a civilian.

Those on active duty, for example, have Servicemembers Civil Relief Act to help keep their financial lives in order. Veterans can turn to debt consolidation loans, especially if they have VA loans. Learn how to handle your military debts prudently here.

Our lenders can answer your questions about VA loans here.

Servicemembers’ Debt Relief

Enacted in 2003, the Act or SCRA by its acronym provides servicemembers and their dependents certain financial protections so they can focus on their military service.

These protections touch on mortgage payments, credit cards, pending actions or trials, taxes, and leases, among other things:

  • Rate cap. The Act limits the interest rate on any debt obligation including mortgages to 6% every year for every service member or his/her spouse. Annual interest rate exceeding 6% may be forgiven and the periodic payment related to the debt whose interest is forgiven may be reduced while the servicemember is on duty.
  • Automatic stay. In case the service member faces an action within nine months after his/her military service, the court upon the request of the servicemember can stay the proceedings or adjust the obligation.
  • Sale or foreclosure. Any foreclosure, sale, or seizure of property is deemed invalid if made within 9 months after the military service unless there is a (i) court order preceding such action or (ii) an agreement is made.
  • Tax assessment. Should a servicemember owe an unpaid tax assessment, the assessment due and payable will bear an interest of 6% per annum until paid. Additional penalty or interest will not be incurred because of nonpayment.

Servicemembers or their families can also enroll in a program that will help them manage their debts.

Find a loan that fits your financing needs.

Debt Consolidation for Veterans

Military veterans, on the other hand, can rely on VA loans to get affordable mortgages with zero down payments and no private mortgage insurance. One important perk tied to this loan is the military debt consolidation loan.

The MDCL or VA consolidation loan is meant for eligible veterans wanting to manage their debts better, a relief especially if they are facing financial setbacks. Because you need to have an existing VA loan to be eligible for one, this debt consolidation loan is akin to a second mortgage but a special one at that.

When you get an MDCL, you borrow against your home’s equity. It works like a cash-out refinance: you take a larger loan to pay your existing unpaid home loan balance and pocket the remaining funds to consolidate debts.

It’s not the VA that will fund the VA consolidation loan, it is the private lender approved by the VA. The Department will still guarantee the loan and you still need to qualify for the loan and pay corresponding closing costs.

Are you eligible for a VA loan, a debt consolidation loan, or the protections under the SCRA? Consult a VA loan specialist today.

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