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Military Debt Consolidation

Military Debt Consolidation

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Daniel Cohen
UpdatedMay 27, 2024
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    7 min read

How is Military Debt Consolidation Different from Regular Debt Consolidation?

Military servicemembers and their families make huge sacrifices for the good of our entire country. Servicemen and servicewoman put their normal lives on hold and place their lives on the line to protect our country’s way of life. We have been at war for the past decade and many members of our military have sacrificed life and limb, all the while receiving very modest financial rewards.

Sadly, many military families find themselves under financial strain, unable to stay on top of the normal monthly bills.

Along with the stress that normally comes with financial struggles, members of the military face additional strain. For a member of the military, a financial problem can affect their status with the military, including the loss of a required security clearance and the possibility of an administrative discharge.

These serious consequences mean that military servicemembers need to be extra careful and work to solve financial problems before they get out of hand. One solution that is available for military families with financial problems is military debt consolidation.

Military Debt Consolidation Options

  1. Debt Consolidation Loan: Servicemembers with problem debt should first focus on military debt consolidation programs that do not seriously harm their credit rating. The first option to look at is a debt consolidation loan. When shopping around for an unsecured loan, a servicemember needs to pay close attention to the interest rate offered. Don't be fooled by a firm that uses the word "military" in its name; that does not mean that they are approved by the government or have your best interests at heart. Plenty of firms that offer military debt consolidation engage in predatory practices, trapping the borrower into an undesirable loan a saddling him or her with exorbitant fees and a sky-high interest rate. Shop around carefully!
  2. Credit Counseling: Credit counseling programs can be an effective way to work on military debt consolidation. The first step in a credit counseling program is to complete a detailed financial review with a counselor, going over household bills, expenses and income. If there is a debt problem, especially one involving high-interest credit cards, a Debt Management Plan (DMP) may be recommended. A DMP aims to lower the interest rates on the credit card and personal loan accounts so the debt is paid off faster. Payments are made to the creditors every month, so there should not be delinquencies that appear on the servicemember’s credit report. Credit counseling does not consolidate debt the way that a loan does; the debts remain in the hands of the original creditors, but they are often advertised as "debt consolidation programs" and ones targeted towards military personnel often are advertised as "military debt consolidation" programs. A credit counseling service’s DMP may be the most effective way to resolve a debt problem for servicemembers whose military job doesn't allow delinquencies to appear on their credit report, but area struggling with high-interest credit cards.
  3. Debt Settlement: Debt settlement is a more aggressive form of debt resolution than credit counseling. The monthly payment in a debt settlement program is usually significantly lower than the minimum payments creditors require. Clients who sign up with a debt settlement program choose to go delinquent on their debts. Accounts in a settlement program usually go into charge-off status, before they are settled. A reputable debt settlement firm will make sure military clients understand the potential harm to their credit rating. Make sure to understand the implications to your status with the military if you choose to use debt settlement to resolve your "military debt consolidation" problems.
Military Debt Consolidation and US Marine Statue
Image Source: Bernt Rostad

Servicemembers Civil Relief Act

Military servicemembers also should be aware that under The Servicemembers Civil Relief Act (SCRA), a federal law, special protections exist for those on active duty or who recently completed active duty, regarding their financial obligations. According to a circular issued by the Veterans Administration , "The SCRA (50 U.S.C. Appendix §§ 501-596) provides numerous protections to active duty military members and reservists, or members of the National Guard called to active duty, and, in limited situations, dependents of military members. The SCRA is intended to ease the economic and legal burdens on military personnel during their active service by postponing, suspending, or mitigating various types of obligations, including mortgage loans. The SCRA provides relief during and after active service under certain circumstances, including:

  • "Restricting the maximum interest rate that may be charged on an obligation following a call to active military service.
  • "Providing certain relief related to evictions; requiring court approval for a non-judicial foreclosure unless the servicemember agrees in writing to allow the foreclosure.
  • "Providing protection to a servicemember who obtained a mortgage after entering active duty, but who is not readily available (especially due to an overseas assignment) to defend him or herself against judicial proceedings."

The Arizona US Attorney summarized the provisions of the SCRA, making clear that "because there are so many finer details to this law, certain exceptions to any situation may exist. Therefore, it is advisable that servicemembers seek more information about their SCRA benefits and obligations by obtaining legal advice and assistance."

The Arizona US Attorney states that "SCRA is intended to lower the monthly financial obligations of a servicemember who enters active duty, by minimizing the effect of his/her reduced income. SCRA applies to credit card debts, car loans, mortgages, personal loans, and other similar obligations and liabilities incurred by the servicemember (or jointly with his/her spouse)." The following rules apply:

  • "Debt must have been incurred by the servicemember before the member entered active duty;
  • "All such debts shall not bear an interest rate more than 6% per year during the period of active duty;
  • "All interest in excess of 6% must be forgiven by the creditor and cannot be shifted to the principal or shifted for payment at a later time;
  • "The creditor must reamortize the payments on the loan based on the 6% interest rate, which will result in lower monthly payments for the servicemember;
  • "The definition of ‘interest" under SCRA includes interest on the loan, service charges, renewal charges, fees, or any other valid charges. All such additional charges combined cannot exceed the 6% annual rate of interest on a debt.
  • "This SCRA provision does NOT apply to obligations incurred by the member while on active duty."

"To take advantage of the reduced interest rate on obligations incurred before going on active duty, servicemembers must:

  • "Provide a creditor with written notice and a copy of the military orders; and
  • "The notice must be given to the creditor at any time up to 180 days after the member's termination or release from active duty;
  • "Upon receipt of proper notification, creditors must apply the 6% interest cap beginning from the member’s first day of active duty. However, the 6% interest rate cap does not apply to federal guaranteed student loans."


Military debt consolidation requires a bit more homework than standard debt consolidation, due to both the special protections available to servicemembers and the potential risks to servicemembers’ military status.

Make sure to understand how the different military debt consolidation options can affect you, before you decide how to resolve your debt problems.

Watch out for predatory lenders. Beware of debt resolution firms that claim to tailor their programs for servicemembers. Be skeptical about firms that use the US flag, the bald eagle, or other patriotic symbols in their advertising. There are legitimate organizations and businesses that use patriotic symbols, such as the Navy-Marine Corps Relief Society. But, there are also bad players that use these symbols in order to give you a false sense of security and lure you into a bad deal.

Never hesitate to get an outside opinion, before you sign any paperwork to hire a firm to work on your behalf, especially one that works to help you get out of debt.

Debt statistics

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Housing debt totaled $12.82 trillion and non-housing debt was $4.88 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Collection and delinquency rates vary by state. For example, in Oklahoma, 14% have student loan debt. Of those holding student loan debt, 11% are in default. Auto/retail loan delinquency rate is 5%.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.