Are you looking for military debt consolidation?
Companies like Ladder Advisors Carina Advisors, Credit 9, and Mobilend have been flooding the market with unrealistically low-interest rate offers that promise a bit more than they can actually deliver. Some of the recipients are members of the military. Some of our military personnel are not always aware of the dangers that can befall them when they are trying to get out of debt. It is important to understand the risks involved in seeking a military loan.
Myths and Misconceptions of Military Debt Consolidation
Military members and their families are often naïve with respect to VA loans. This misunderstanding can prove to be costly and it can take them into the abyss of mounting debts. Many of them believe the VA extends home loans. However, the truth of the matter is that banks forward the loans, not the VA. All that the VA can do is to provide up to 25% of the loan amount and apply certain restrictions on banks to control the costs of these loans. However, the VA cannot decide who qualifies for these loans and the amount of credit that they can receive. The banks decide these key issues.
Financial Problems of Military Personnel
There is still the widespread myth that the VA extends loans when in fact this is not the case. These myths and misunderstandings can prove to be detrimental. According to a 2014 survey by the National Federation for Credit Counseling, compared to their civilian counterparts, military members and veterans were burdened with $500 of extra unsecured debt and $11,000 less in total assets. Veterans and members of the military also spent $200 more on debt charges compared to civilians which indicate the depth of their financial problems.
The same survey also revealed further shocking facts. A staggering 60% of military members and veterans relied on payday loans to make ends meet. The average veteran contacting the NFCC also had a debt of $10,000.
Considering the dire problems that military members and veterans face with respect to mounting debts, the federal government took certain measures to alleviate their problems. The federal government promulgated the Service Members Civil Relief Act that aims to protect the country’s veterans and military members against financial catastrophe. Under this law, mortgages and credit card interest rates on military members cannot exceed 6%. Lenders are not allowed to foreclose homes of military personnel. Veterans and military members can cancel their leases without incurring any penalty.
Military Debt Consolidation and VA Loans
Military members and veterans can take heart that military debt consolidation is available for resolving their financial problems.
Military veterans and personnel who have problems with paying back VA loans can resort to military debt consolidation to refinance their VA loans. Military debt consolidation is possible only if the market value of the home in question is greater than the debt owed. It is also known as veterans debt consolidation.
How Veterans Debt Consolidation Works
Here is how military debt consolidation works. Suppose the market value of your home is $125,000 while the loan is $100,000. With the help of military debt consolidation, you can refinance the full amount of your home to free up $25,000 worth of cash. You may even enjoy a lower interest rate in addition.
If you have a VA loan, then you automatically qualify for military debt consolidation. Under this plan, all of your payday loans, medical bills, credit cards, and other unsecured liabilities are replaced under one personal loan for debt consolidation. Hence veterans debt consolidation works in much the same way as ordinary consolidation loans. These loans are also referred to as ‘cash out’ loans. That is, you refinance your current debts to receive a loan that is greater than your aggregate debt. The difference is forwarded to you in the form of cash that you can leverage to pay off your high interest debts.
However, you will also have to pay closing costs if you resort to veterans debt consolidation. Using veterans debt consolidation to lower your interest rate and thus reduce the interest that you must pay is a wise move.
With the help of veterans debt consolidation, you can also consolidate high interest rate credit card debt. Veterans debt consolidation for credit card debt is a prudent decision since you will have to pay less interest on your credit balances. However, one major drawback of veterans debt consolidation is that unsecured debt is lumped together with a loan that has your house as the collateral. You must pay the full amount in order to retain your home.
The VA acts as the guarantor in this refinance scheme. Keep in mind that the new loan cannot be in excess of market value of your property. You should also remember that if you have difficulties paying off your VA loans, then this can limit the VA loans that you can withdraw in the future.
The primary benefit of this refinance scheme is that you will have to pay a comparatively smaller interest rate on the refinanced loan as compared to civilians. The closing costs that you will incur will also be less than what civilians have to pay. The interest that you will be paying on the refinanced loan is much smaller than prohibitive credit card interest rates.
There are also a number of repayment options at your disposal. You can repay this loan in 10 years, 15 years and also 30 years. You can hence make all kinds of repayment plans with veterans debt consolidation loans.
Here are some of the advantages of military debt consolidation/ veteran debt consolidation.
- Qualification requires a fairly low credit rating
- More lenient debt-to-income ratio requirement
- Generous repayment term up to 30 years
- Lower interest rates
- Down payment is not required
- You do not need to pay mortgage insurance premiums each month
- Early loan discharge does not incur prepayment penalties
- Closing costs are lower compared to loans for civilians
- Active-duty military personnel have protection against foreclosure
Here are the disadvantages of military debt consolidation/veterans debt consolidation:
- Risk of foreclosure for veterans
- Mortgage rates depend on the market conditions
- Debt problems can possibly intensify unless there is an improvement in financial habits
- Closing costs range between $1,200 and $6,000
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