Military Debt Relief for Veterans

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.



Transitioning the transition from active duty to civilian life presents a unique set of challenges, especially when it comes to managing personal finances. The concept of interest, whether compounding or simple, plays a crucial role in the financial lives of veterans, affecting everything from savings to the accumulation of debt.

Compounding interest, while beneficial for investments, can also significantly increase the amount owed on loans and credit, turning debt into a formidable enemy to financial stability. As veterans who have faced adversaries on multiple fronts to safeguard our freedoms, the battle doesn't end upon returning home; many find themselves confronting a silent adversary: debt. If left unchecked, this debt can accumulate quietly, threatening the future you've worked so hard to protect.

This guide explores into specialized debt relief and financial assistance programs tailored for veterans. Whether you're striving to manage debt, seeking strategies to strengthen your financial defenses, or exploring the benefits earned through your service, this post aims to be your ally. Together, we'll explore military debt relief options, highlighting ways to reduce your debt, improve your credit score, and achieve the financial freedom you deserve. Armed with this knowledge, let's embark on a mission to secure your financial future and claim victory over debt.

If you'd like to skip the article and speak to a debt specialist right away, click here for a free consultation.

What is military debt relief?

The term military debt generally refers to the kind of debt covered by the U.S. Department of Veterans Affairs (VA), including loans, mortgages, insurance premiums for Servicemembers Group Life Insurance (SGLI) and Veterans’ Group Life Insurance (VGLI) policies, tuition and fee payments made under the Montgomery GI Bill program, and monthly wraparound mortgage payments paid through VA's home loan program.

Veterans need help to repay some of their traditional military education loans. These loans can be obtained for up to $250K during an enlistment, and the principal balance will still be incurred once repayment starts at 8%, which is much lower than regular rates on private loans.

If you are eligible, you will receive both an Active Duty soldier benefit of $1.7k towards your interest-free monthly payment, as well as a service member’s spouse/child allowance of $825 per month for any children living with them full-time (additional benefits include educational assistance).

The Department of Veterans Affairs offers a series of benefits for those who served in the military. You can learn more about these benefits here or by visiting your local VA hospital.

You may also be interested in a program called Purple Heart recipients. The organization serves as an information resource to active duty and wounded veterans around the country, providing them with programs and services designed to improve their quality of life. Learn more at purpleheartrecipients.org

What’s the Average debt for military service members?

Service members are expected to accumulate debt for many reasons, including food, gas for rent or mortgage payments, durable goods like furniture or cars, deposits on housing that they will eventually be able to buy out of if they choose.

Veterans usually have significant debt because not all benefits are upfront and there is GI bill money they never see. Additionally, vets often need things repaired after service, but the VA can't fix everything.

The US Department of Defense reported last year that the average indebtedness per discharged veteran was about $20K per person in medical bills with higher rates among younger veterans ($37K) compared to older veterans ($23K).

The military has a robust program of benefits such as tuition assistance (up to $4,500 per year), book stipends, and travel reimbursements to the schools of one's choice. If you take advantage of these benefits before you graduate or leave the service, then your debt is probably limited to what you were able to accumulate with financial aid and what you owe toward private student loans (college loans).

However, if this is not something that was taken advantage of while in service and during school-year breaks from service (i.e., summer break), then there'll be a substantial amount owing on those educational loan debts.

What help is available for military debt relief?

Military families often find themselves in over their heads with debt while serving our country. Fortunately, there are helpful resources available for military members and their families. One such resource is the assistance offered by the Department of Veteran Affairs (VA).

They offer a variety of services to eligible individuals including health care, home loans, education benefits, and other financial support programs designed to serve those who've served our nation. Additional information can be found at http://www.va.gov/. It's also important to note that many states offer free chapter 7 bankruptcy assistance for military personnel who are filing bankruptcy.

Signing up for Unemployment Insurance is one option. It's important to keep in mind that you can't collect social security until you are discharged from service and contributions to your military retirement calculation stop when you leave the armed forces. 

The last thing anyone wants is for a veteran returning from combat - especially one with good performance and character ratings and who has survived without any major injuries, Bronze Star or higher medal level, etc. - to be penalized because of an already difficult financial situation.

The VA will alert those veterans with unpaid debts about these consequences as soon as they become obligated for "payment" by their finance office (usually 18 months).

The benefits of working with a professional to help you get out of debt

The real benefit of working with a professional to help get you out of debt is that it can save you a lot of time and financial distress.

Many people feel they have to go at it alone in order to get out of debt, but it's really far more efficient when someone with the proper understanding of the law is at your side guiding you through the process without making costly mistakes, not to mention the amount of time it takes to do it yourself. 

A professional will help you find a knowledgeable lender willing to work with both sides in a reasonable manner so there are no lawsuits, and then will review your agreement for fairness before advising that it be signed. 

Why it's important to tackle your debts head-on

It's important to tackle your debts head-on because debt is not good for anybody. It causes stress and depression, and it has an inherent interest rate attached to it.

So if you were to pay off one debt, the principle would be multiplied by the number of months at a set monthly payment that you had in that debt, and then added onto any other debts owed in addition to that principle.

This can quickly add up and keep people in a cycle of stress trying desperately enough to stay afloat during repayment times when they're actively making progress towards reducing their debt load.

What is the debt snowball effect?

The snowball effect of debt, which means that the longer you leave it, the more it will snowball. A common theory is called the "snowball effect."

Basically what happens during a snowstorm is that your road gets cleared out by a runner in front of you, and after they clear away one pile, another pile builds up behind them ― this goes on all day with each person passing by.

It's a simple analogy for how debt works too: As long as new payments are going to old debts then-new payments will continue to accumulate.

And every time a payment comes in or is made, any outstanding balance beyond that balance gets bigger and bigger with interest charges accruing from each month's balance.

Some tips for tackling your debts without professional assistance

This really depends on your debt situation. We recommend you contact your creditors, ask for their best offer on the principal balance on the account, and compare it to other offers you've received from other institutions.

If you owe over $10,000 in unsecured debt to one institution and they resist providing a written offer containing all terms of repayment, we recommend contacting another lender for an unsecured credit balance transfer and including the amount of money owed to this merchant as part of that request.

Payday loans should be avoided at all costs - they're attractive because payments are typically due every two weeks or so depending on when payday arrives. But don't be fooled! These lenders charge astronomically high interest rates.

Budgeting Tips

Military families face unique budgeting challenges with frequent moves and deployment. 

Here are some tips to maintain control of your finances:

• Use allotments to automatically direct a portion of paychecks towards savings and debt repayment
• Carefully track spending while separated from family to avoid overspending
• Plan for fluctuations in income when transitioning between duty stations or returning from deployment
• Take advantage of free financial counseling resources offered on base
• Communicate frequently with spouses/family about financial goals and changes
• Start an emergency fund to help smooth transitions and unexpected costs

Additional Resources

Beyond the VA, there are other organizations that provide financial assistance for military members:

• Military relief societies like Army Emergency Relief offer grants and interest-free loans to cover emergency costs.
• Scholarships and grants specifically for military spouses pursuing further education and training can help offset costs.
• Free nonprofit credit counseling agencies like NFCC work with military members to improve finances.
• Military banks and credit unions offer financial products tailored specifically to military life.
• Organizations like USA Cares provide financial assistance for post-9/11 veterans.

Managing Education Debt

Make the most of education benefits available through military service:

• Use GI Bill benefits to maximum potential to avoid student loan debt.
• Explore Public Service Loan Forgiveness - periods of military service count towards eligibility.
• Take advantage of military student loan repayment programs like College Loan Repayment Program (CLRP) which provide incentive to enlist.
• Military spouses should look into affordable education options like community college to minimize costs.

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