Sense & Centsibility Blog

Managing Debt as an Active Service Member in the Military

Military memberMembers of the military face unique situations and challenges that civilians do not. For example, active service members face the possibility of deployment and sometimes continuous relocation. A 2014 National Foundation for Credit Counseling (NFCC) survey indicated 77% of service members have financial worries and 55% believe they're not prepared to handle a financial emergency. 

Although debt is not unique to members of the military, the NFCC survey stated that more military members than non-military carried debt - 58% vs. 34%.

Security Clearance and Debt

Military members risk losing their security clearance, the chance for promotions, and even the possibility of their career ending if the service member does not effectively manage her/his debt. This includes (but is not limited to): a history of not meeting financial obligations and the inability or unwillingness to pay off debt.

Here are some debt relief strategies that service members can try:

Power Pay Method

The power pay method, or snowball method, is a great way to pay off your debt faster. There are two ways to do it:

Highest Interest Rate

Determine which of your debts has the highest interest rate. Then, pay extra toward that debt until it's paid off. The debt with the highest interest rate is your target to pay off first because it's costing you the most money. Once you pay off the debt with the highest interest, take the payment you were making and add that to the minimum payment of the next highest interest rate debt. Continue this process until all your debts are paid off. This method takes time to show progress, but in the long run will save you the most money.

Lowest Balance

Instead of the highest interest, you're focusing on the debt with the lowest balance. Pay extra toward this debt and when it's paid off, add that payment to the minimum amount due for the next lowest balance debt. Continue doing so until all debts are paid off.

This method won't save you as much money in the long run; however, it will help you get rid of a monthly payment faster. So if you need a little wiggle room in your budget, this is the approach you should take.

Debt Management Plan

LSS Financial Counseling is a member of the above-mentioned National Foundation for Credit Counseling (NFCC) and we help people set up DMPs every day.  We work with creditors to set up the DMP with typically reduced interest rates. You make payments to LSS and we send out the money your creditors/lenders. With on-time, monthly payments, the DMP will help improve your credit score. Not to mention, your debt will be paid off faster and you'll save money in interest. Want to see if the DMP is right for you? Click the button below to start online financial counseling or call 888.577.2227 to schedule a phone or in-person session. All sessions are free!

Student Loans

Service members have additional rights when in repayment of their student loans, such as payment deferments while on active duty. And there is no time limit on the military deferment. Military service is also considered public service, meaning service members may qualify for Direct Loan Public Service Cancellation.  For more information about service members and student loans, visit Student Loan Borrower, Veterans Education Success, and the Consumer Financial Protection Bureau (CFPB) guide for service members with student loans.

Tips for Success

While you're getting a handle on and working on paying off your debt, there are actions you should take to be successful.

  1. Create a budget and stick to it. Avoid overspending by making and sticking to shopping lists.
  2. Pay bills on time each month and don't use credit cards unless you can pay off what you charge immediately. If you're tempted to use them, cut up your cards.
  3. Build an emergency fund. Set aside money every paycheck or at least monthly. Savings will be your safety net in case of an unexpected expense and will help you avoid adding on more debt.
  4. Make budget cuts. Are there expenses in your budget that you can reduce or cut - even temporarily? Then use that amount you're no longer spending to either help pay off debt faster or grow emergency savings.
  5. Document all efforts you're taking to manage your debt, including phone calls made, if financial/credit counseling was completed, etc.Service members also have certain financial and housing rights/protections. For details, visit the U.S. Department of Justice website.

LSS Financial Counseling is a nonprofit organization working to help service members, veterans, and civilians achieve their financial goals and pay off debt.