Debt Repayment: Strategies for Service Members and Veterans

Debt is a common challenge for service members and veterans, often exacerbated by expenses related to relocations, deployments, and the transition to civilian life. Without a plan, it can impact financial security, careers, and the pursuit of long-term goals.

According to the National Foundation for Credit Counseling (NFCC), 58% of military families carry monthly credit card debt, compared to 34% of the general population, and 9 in 10 active-duty members worry about their finances.

Military financial stress often stems from spousal job loss, reduced benefits, and reliance on high-interest loans, in addition to these expenses mentioned for relocations, deployments, and transitioning out of military service. This article provides strategies for paying off debt, budgeting to avoid it in the future, and planning for long-term financial security to achieve your goals.

Step 1: Explore Military and Veteran Debt Relief Resources

Both veterans and active-duty service members have access to resources that support debt repayment and long-term financial stability.

Two key laws—the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA)—offer active-duty service members protection from predatory lending practices and aggressive collection efforts. For veterans, the VA Debt Management Center (DMC) provides assistance with repaying VA-related debts, offering options like repayment plans, waivers, and hardship relief.

Servicemembers Civil Relief Act (SCRA)

As defined by the Office of The Comptroller of the Currency (OCC), the SCRA postpones or suspends certain civil obligations to enable service members to devote their full attention to duty and to relieve stress on their families. The act covers:

• Outstanding credit card debt
• Mortgage payments
• Pending trials
• Taxes
• Termination of lease
• Eviction from housing
• Life insurance protection

Military Lending Act (MLA)

The MLA protects active-duty service members and their covered dependents from high-cost credit practices. It caps interest rates at 36% Military Annual Percentage Rate (MAPR) on certain types of consumer loans—including payday loans, vehicle title loans, and some installment loans—and prohibits lenders from requiring mandatory arbitration or waiving certain legal rights. These protections help ensure that military families aren’t targeted by unfair or predatory lending practices.

VA Debt Management Center (DMC)

The VA Debt Management Center helps veterans resolve debts related to VA benefits, including overpayments or adjustments in compensation, pension, or education benefits. The DMC offers flexible solutions such as repayment plans, waivers, and temporary hardship relief. If you're facing a VA-related debt, it's important to act quickly—ignoring notices could lead to collections. Veterans can manage their accounts, set up payment plans, or request relief directly through the DMC’s online portal

Step 2: Consider Debt Consolidation Options

What is a Debt Consolidation Loan?

A debt consolidation loan allows service members to combine multiple high-interest debts into a single loan—often with a lower interest rate. This simplifies repayment into one predictable monthly installment, which may lower your monthly payments or help you pay off debt more efficiently. It’s a useful tool, but one that comes with trade-offs to consider.

Benefits of Debt Consolidation Loans

• Simplifies Repayment – One monthly payment makes managing debt easier.
• Lower Interest Potential – Can reduce the total amount paid over time.
• Credit Score Support – On-time payments may help improve your credit.
• Less Financial Stress – Fewer due dates and less juggling across accounts.

Potential Drawbacks

• Longer Repayment Terms – Lower payments can stretch out the loan, increasing total interest.
• Fees – Origination or transfer fees may add to the cost.
• Collateral Risk – Secured loans may put your home or car at risk if payments are missed.
• New Debt Risk – Without disciplined spending, it's easy to take on new debt before paying off the old.

Key Factors to Consider

Some lenders offer military-specific consolidation loans, but it’s smart to shop around. Be sure to review:

• Interest Rates – Ensure the new rate is lower than what you're currently paying.
• Fees and Penalties – Understand the full cost, including any charges for early payoff.
• Loan Terms – Choose a repayment plan that fits your goals and budget.

For more details, explore First Command’s full guide on debt consolidation tactics and how to make this strategy work for your financial future.

Step 3: Create a Repayment Plan & Budget

Even with these resources, you might still wonder: Should I invest first or pay down my debt?

Understanding the trade-offs between debt reduction and investing is crucial. While both strategies have advantages, reducing debt first can free up your cash, reducing long-term interest costs. If you’re interested in a deeper dive into whether it’s best to invest or pay off debt, check out this article. Whether or not you consolidate debt, having a clear and actionable repayment plan is essential for long-term financial success.

Effective Debt Repayment Strategies

• Avalanche Method – Focus on paying off high-interest debt first to minimize total interest paid over time.
• Snowball Method – Pay off smaller debts first to build momentum and motivation.
• Hybrid Approach – Combine both methods based on your financial priorities.

Budgeting for Success

A well-structured budget can ensure that debt repayment stays on track while putting you in position to avoid incurring debt in the future. Follow these key steps:

1. Cover essentials like housing, utilities, and food first.
2. Reduce discretionary spending to free up funds for debt repayment.
3. Prioritize high-interest debt while maintaining minimum payments on others.
4. Regularly review and adjust your budget as your financial needs change.

For personalized financial strategies that align with your goals, consider speaking with a First Command Financial Advisor. Professional guidance can help you prioritize debt repayment, build savings, and plan for long-term financial security.

Step 4: Next Steps After Gaining Control of Debt

Once you have a handle on your debt and your repayment plan is working, it’s important to think about your next financial steps. While every situation is different, here are a few considerations to help build financial stability moving forward:

• Build an Emergency Fund – Aim to save 3-6 months’ worth of expenses to protect against unexpected expenses.
• Set New Financial Goals – Whether it’s purchasing a home, saving for education, or planning for retirement, setting clear goals can keep you focused on the right behaviors.
• Contribute to Military Savings Programs – Take advantage of tax-advantaged investment accounts like the Thrift Savings Plan (TSP) and Individual Retirement Accounts (IRAs).
• Monitor Credit Health – Ensure that credit scores continue improving by making payments on time and keeping debt levels manageable.

For additional guidance on financial planning after debt repayment, consider speaking with a financial advisor who can provide insights specific to your situation.

Debt Management and Debt Consolidation Loan FAQ

Can you get kicked out of the military for debt?

Debt itself isn’t grounds for discharge, but financial mismanagement can impact security clearance and career progression. Late payments, excessive credit card balances, or defaulting on loans can raise red flags that may affect your ability to retain certain military positions or security clearances.

Do debt consolidation loans hurt your credit?

Applying for a debt consolidation loan may cause a temporary dip in your credit score due to a hard inquiry on your credit report. However, consistently making on-time payments on the consolidation loan can improve your credit over time. The key is to avoid taking on new high-interest debt while repaying the loan.

How do service members qualify for SCRA interest rate relief?

Active-duty members can request SCRA benefits by submitting written notice and proof of service to their lender. This benefit applies to loans taken out before active-duty service and can provide substantial interest-rate relief on mortgages, credit cards, and other loans.

Does SCRA apply to spouses?

Yes, in certain cases, particularly for joint accounts or when a spouse holds power of attorney. If a service member is deployed, their spouse may be eligible for the same interest-rate protections on jointly held loans.

Does SCRA apply to mortgages?

Yes, eligible service members can request interest rate reductions and foreclosure protections under the SCRA. Lenders must cap interest at 6% on pre-service mortgages and cannot foreclose without a court order during active duty and for a period afterward.

Does the Military Lending Act apply to dependents?

Yes, MLA protections extend to spouses and dependents of covered service members. This includes interest-rate caps and protections against unfair lending practices for payday loans, credit cards, and certain types of installment loans.

TSP funds have very low administrative and investment expenses and, low expenses can have a positive effect on the rate of return of your investment.