While being in the military can be an incredibly rewarding experience, it can also lead to significant financial challenges. Despite the fact that military members receive housing allowances, tax exemptions, overseas pay, and a number of other benefits, the unique circumstances of military life result in many servicemembers struggling with debt.
A survey by the National Federation of Credit Counseling (NFCC) found that military families had $400 to $500 more in unsecured debt than their civilian counterparts. They also spent $200 more a month on debt-related expenses.
If you’re in the military or part of a military family, it’s important to educate yourself on financial challenges you may encounter, so you can take control of your money and help set yourself up for a more financially secure future. Let’s explore the top three things the active military should know about debt and finances.
1. Understand the Military Lending Act
The Military Lending Act is a federal law enacted to protect active military members, their spouses, and dependents from predatory lending practices. Authorized in 2006, its main purpose is to keep finances safe from lenders and lending practices that may take advantage of servicemembers. Here’s a brief overview of what the law says.
- It is illegal to charge active duty military members and their covered dependents more than a 36% annual percentage rate.
- Those covered under this law must be permitted to pay back part or all of their loan early without facing prepayment penalties.
- Mandatory allotments, which are automatic amounts of money garnished from your paycheck to repay a loan, are not allowed.
When the Military Lending Act was initially implemented, it only applied to payday loans, vehicle title loans, and tax refund anticipation loans. In 2015, however, the law was updated to cover many other types of loan products including deposit advance loans, overdraft lines of credit, and installment loans.
It’s important to understand that home equity lines of credit and residential mortgages are excluded from the Military Lending Act. If you believe your rights under the Military Lending Act may have been violated, be sure to file a complaint with the Consumer Financial Protection Bureau and speak to a lawyer if you need to take or respond to legal action with a lender.
2. Manage your money
It can be stressful to deal with past due rent and utility payments, credit card debt, and other financial issues while you’re home or and especially while deployed. So it’s a good idea to work on managing your money and keeping your debt to a minimum. These strategies can help you do just that.
- Set a budget: At its core, a budget is a spending plan based on your unique income and expenses. If you create a budget (and stick to it), you’ll have a better understanding of how much it takes to cover everything you need and want.
- Establish an emergency fund: A financial emergency can hit when you least expect it. With a solid emergency fund, you’ll be better able to cover an unexpected car repair, family expense, or other financial expenses that may come your way.
- Make sure you take advantage of military discounts: More companies offer discounts to military personnel than you might realize. The next time you have to buy insurance, furniture, or anything else, do some research and find out if there are any military discounts at your disposal. The PX is not the only place you can find a great deal!
- Save for retirement: It can be difficult to prioritize retirement savings while you’re on active duty, but your pension may not be enough to fully support retirement. Compound interest is the key to a healthy nest egg, so look for money in your budget to put toward additional retirement savings. Open a Thrift Savings Plan, (similar to a civilian 401(k) plan), that can allow you to make tax-deferred investments.
3. Prepare for the worst
You may be deployed abroad or here in the U.S. when an unexpected situation like the coronavirus pandemic occurs. Therefore, you need to prepare for the worst when you are away from family and make sure all of your finances are in order. You can start by taking these steps.
- Draft your will: A will is a legal document that outlines how your assets will be distributed after your death. If you have complicated assets, you can work with a civilian estate planning attorney to ensure your will, trust, Power of Attorney or other plan is ideal for your specific situation. For a simpler estate plan, your JAG can help you set up a will or other planning instrument.
- Set up auto pay: Make sure that your bills are set up with auto pay so that you don’t have to worry about how they’ll get paid in the event of an emergency.
- Add beneficiaries on your accounts: Take a look at all of your investment accounts and make sure beneficiaries are listed so they can get passed on to the right people.
- Check your life insurance: Military members get life insurance automatically through Servicemembers Group Life Insurance (SGLI). Review your current coverage and determine whether you need more.
Need more help? Consider debt relief
If you’re part of the military community and struggling with debt or just worried about falling behind on payments, it might be time to take action. Freedom Debt Relief is here to help everyone, including the military, with debt relief by educating you on your options. You can connect with our Certified Debt Consultants who can assist you in finding a solution that will put you on the path to a better financial future. Find out if you qualify right now.
- How to Prepare for a Recession If You are Already Struggling (Freedom Debt Relief)
- Need to Skip a Loan Payment Because of COVID-19? Talk to Your Lender Now (Freedom Debt Relief)
- Coronavirus Stimulus Package: What it Means For You (Freedom Debt Relief)
- Financial Help for Service Members Affected by the Coronavirus (Consumer Financial Protection Bureau)