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Veterans and Debt: What Benefits Are Available for Those Who Serve?

Here’s a look at some of the most important programs available to help military veterans manage their debt and meet their financial goals.

November 10, 2021

If you’ve served in the military — or are actively serving now — you have access to special benefits from the Department of Veterans Affairs (VA). These benefits may be able to help you and your family manage debt, buy a home and save for the future. 

That said, of the 19 million or so veterans in the U.S., many may be unaware of some of the benefits available to them, or, at least how accessible they actually are. Here’s a look at some of the most important programs available to help those who have served manage their debt and meet their financial goals.

VA Home Loan

The VA Home Loan program was created as part of the 1944 GI Bill of Rights and has since helped more than 20 million veterans and active military members buy a home. The program makes it easier to acquire a mortgage and doesn’t require mortgage applicants to make a down payment, pay mortgage insurance or cover some closing costs. 

Most veterans who have served in the active or reserve units of the military or National Guard are eligible for VA loans. Activity duty members qualify after serving for six months, while reservists qualify after six years of service. Reservists called to active duty are eligible after serving 90 days.

The VA doesn’t directly offer mortgages, but it guarantees the loans, taking on the associated risks. This allows banks, credit unions and mortgage companies to provide better terms and interest rates. 

Available VA home loans for veterans include:

  • Purchase Loans offer competitive interest rates with no down payment or private mortgage insurance to help you buy a home. 

  • Cash Out Refinance Loans help tap into a home’s equity to make home improvements, pay off debt or cover other costs like college tuition. 

  • Interest Rate Reduction Refinance Loans can help you refinance an existing VA loan to gain access to a lower interest rate. 

  • Native America Direct Loans help Native American veterans finance the purchase of a home or the construction or improvement of homes on Federal Trust Land. They can also reduce the interest rate on a VA loan. 

Veterans with poor credit history may find it easier to qualify for a VA home loan than a traditional mortgage. For example, the VA doesn’t count foreclosures or bankruptcy against you after two years, whereas you might have to wait as many as four to apply for a conventional mortgage. 

In most American counties, the standard VA home loan limit is $548,250 for a one-unit property. That’s an increase of about 7.4% from 2020. In more expensive states, like Alaska and Hawaii, the loan limit is $822,375.

Military Debt Consolidation Loan

If you’re a veteran and you’ve run into financial difficulties, a Military Debt Consolidation Loan (MDCL) may help. If you already have a VA loan, you qualify automatically. Military Debt Consolidation Loans are technically considered cash-out loans and are available to homeowners. 

Here’s how it works: You refinance your current mortgage for more than the amount you owe and take the difference in cash. You can use that cash to pay off your other bills, such as credit card debt, consolidating payments to multiple creditors into one monthly payment.  

For example, say you have a $200,000 house and have paid off half of it. You need $30,000 to pay off your debts, so you convert some of the equity you’ve already built up in your home into cash by taking out a new loan for $130,000. 

You can then cover the remaining $100,000 you need to pay off your mortgage with $30,000 leftover to cover your debts. Your new loans can’t be more than the appraised value of your home. It’s important to note that closing costs will be subtracted from the final cash amount you receive. 

As with VA home loans, the VA acts as guarantor for your Military Debt Consolidation Loan. As a result, you’ll typically pay lower interest rates and closing costs than with traditional cash-out loans. Together, these costs are usually lower than the high-interest rates you will likely incur with credit card debt.

Other advantages include longer repayment terms, no monthly mortgage insurance premiums, and no prepayment penalties.

While a Military Debt Consolidation Loan can help you avoid the long-term costs of high-interest rates, there are a few things you should consider before signing up for one. 

First, find out if any of the debts you’ll be paying off have prepayment penalties that could make paying them off early more expensive than you thought. Also, be aware that one of the main drawbacks to a Military Debt Consolidation Loan is the potential of losing equity in your home. 

What’s more, when you use a Military Debt Consolidation Loan, you’re often paying off unsecured debt with a new secured loan that uses your house as collateral. While defaulting on unsecured debt can torpedo your credit score and send your debt into collections, you could lose your home if you default on a Military Debt Consolidation Loan. 

Financial help for veterans

The government knows that debt management as an active duty member or a veteran can be a challenge, so many programs are available to help, including loans for veterans.

Some veterans may qualify for the Homeowner’s Assistance Program. This program provides financial aid to veterans who are forced to sell their homes at a loss near closed or downsizing military bases. 

The Military Lending Act puts a cap of 36% on interest and fees for military personnel who have taken out potentially predatory loans, such as payday loans, tax refund anticipation loans, and vehicle title loans. Though high, this cap can protect you from loans with most astronomical interest rates. 

The Servicemembers Civil Relief Act provides a wide range of benefits to those in military service, and it may have protected you from high credit card payment rates while you were on active duty. Though when you leave the service, standard interest rates start up again. 

Getting help

If you’re struggling with debt, help is out there. The VA provides free financial counseling services to members who hold a Servicemember’s Group Life Insurance policy. This service is provided through an independent company expert in handling many financial questions and issues. You may also consider reaching out to the National Foundation for Credit Counseling, a nonprofit group that can connect you with an experienced credit counselor.  

If you’re having trouble paying your existing debts, consider negotiating a debt settlement directly with private lenders. A debt settlement is a lump sum payment that is lower than the amount you owe. Be aware that negotiations may take some time, and your debts and late fees may continue to stack up, harming your credit. 

You may also consider a third-party debt settlement company, which comes with drawbacks. These companies tend to be for-profit, often charging high fees. There is no guarantee they will settle with your lenders.  As a result, you may want to carefully consider other options before choosing this route. 

If you’re struggling to manage your credit card debt, consider Tally†. Tally is a credit card debt repayment tool that helps you organize all your credit cards in one place and knock out your credit card debt faster with a lower-interest line of credit. 

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.