How to Manage Your Finances When Serving in the Military

Constantly being relocated, spouses losing jobs or having a hard time finding one and the possibility of deployment are just some of the strains that cause problems for members of the military and their families.

A 2014 National Foundation for Credit Counseling (NFCC) survey said 77% of servicemembers admitted to having financial worries and 55% believe they are not prepared to handle a financial emergency. About half say they have used loans from friends, family, credit cards or payday lenders to cover expenses.

The survey said twice as many military members applied for credit cards as the general population and 58% of military carried credit card debt over from month-to-month as compared to 34% of the general population.

So while the problem of debt is universal, being in debt often is more common for active armed forces personnel and their dependents than for non-military families. Still, taking steps toward eliminating debt, which include debt management plans, debt consolidation and debt settlement, are available to everyone.

Debt-Relief Strategies

A generally accepted debt-relief strategy that military servicemembers can use is known as snowballing. Snowballing begins with making a list of one’s financial obligations and then attacking the smallest one first, while paying only the minimum amount on larger debts. Each succeeding larger debt gets repaid in order until they are all retired. Snowballing can help someone get out of debt over the course of a few years, as long as new debt is not added.

Other strategies that could help military families eliminate debt include:
  • Set short-, medium- and long-term financial goals
  • Set up a budget and live by it
  • Save a portion of earnings every month; save a larger portion of bonus or tax-free pay
  • Establish an emergency fund
  • Keep credit card spending to a minimum
  • Investigate Internal Revenue Service (IRS) advantages extended to military families
  • Take advantage of military discounts for insurance needs.
  • Save for retirement

Servicemembers Civil Relief Act

The United States has long recognized the need to offer financial assistance and protection to its military members and the most recent law passed was the Servicemembers Civil Relief Act (SCRA) in 2003. The main purpose of the SCRA is to allow servicemembers to focus on their job responsibilities without fear of adverse financial consequences for themselves or their families while they are training or fighting in battle.

The SCRA protects members of the Army, Navy, Air Force, Marine Corps and Coast Guard who are on active duty or absent from duty as a result of being wounded or granted leave. It also protects members of the National Guard called to active duty and those who are active commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administrations.

Spouses and children of covered members can also qualify for certain protections as does anyone for whom a servicemember supplies more than half of their financial support.

Civilian employees or contractors who deal with the military are not covered by the SCRA.

The benefits of the SCRA start the day a servicemember begins active duty and legally expire the day the active duty period ends. However, some companies extend SCRA benefits for six months and as much as a year for certain financial products like credit cards and mortgages.

There are many areas of finance protected by the SCRA, but most of them deal with home, auto and credit cards. The SCRA provides protection related to mortgage foreclosures, rent agreements, automobile repossessions, any change in rates for credit card, life or health insurance and income tax payments.

Some of the more commonly invoked provisions of the SCRA include:
  • Capping Interest Rates — Companies may not charge more than 6% interest per year on any credit card, mortgage or other loans for the period of active duty. This cap does not apply to new loans or credit card charges made while on active duty, or student loans.
  • Legal Protection — Lenders cannot deny or revoke credit, change the terms of an existing loan or refuse to grant credit because someone seeks SCRA protections. Similarly, insurers may not refuse to insure someone after a SCRA protection is invoked.
  • Judicial Relief — If active duty prevents someone from attending a scheduled court appearance — including actions involving bankruptcy, divorce or foreclosure — SCRA allows the individual to request a postponement for at least 90 days.
  • Protection Against Evictions — With certain restrictions, a landlord cannot evict a servicemember or his or her dependents while the person is serving on active duty, without first obtaining a court order.
  • Ability to Terminate Property Leases— Servicemembers can terminate without penalty any residential or business property lease that began before the active-duty assignment.
  • Cancellation of Automobile Leases — Servicemembers can terminate a truck or car lease if they are called to active duty for 180 days or longer after signing the lease.
  • Relief from Foreclosures and Forced Sales— Real estate may not be foreclosed nor vehicles repossessed without a court order, if the terms of the purchase contract are violated because of active military service.
  • Insurance Coverage — Servicemembers are entitled to have health insurance reinstated if it was terminated while on active duty. Life insurance also is protected against lapse, termination and forfeiture for nonpayment of premiums or indebtedness for the period of military service plus two years. Professional liability insurance can be suspended upon written request during the period of active duty. Requests must be made through the Veterans Administration.
  • Cell Phone Service — Service can be terminated if the servicemember is relocated to an area that doesn’t support the contract.
  • State Tax Relief — The SCRA prevents servicemembers from having to pay state taxes on their military income — or personal property, such as a car — to any state other than their home state of legal residency. If military orders require a move to another state, the “domicile” or state of legal residence for tax purposes does not change.
  • Small Business Owners — Military pay and nonbusiness assets are protected from creditors.
  • Voting Rights — Servicemembers can’t be suspended by their home state if absence is due to military service.

Waiving SCRA Rights

Though it is hard to imagine a situation where it helps, it is possible for servicemembers to waive the rights and protections afforded by the Servicemembers Civil Relief Act.

To do so, the servicemember must sign the waiver during or after a period of military service. Any waivers signed before entering military service are invalid.

Any servicemember considering a waiver should read the document carefully and seek the advice of a qualified lawyer before signing.

Military Saves Campaign

In 2007, the Department of Defense (DoD) launched “Military Saves,” a department-wide financial marketing campaign to persuade and motivate servicemembers and their families to reduce debt and save money.

The program encourages members to take the “Military Saves Pledge” and automatically deduct a portion of their paycheck for a designated savings account. Military Saves is aimed primarily at enlisted military personnel, their spouses and children. These are the ones most susceptible to financial challenges and often the most inexperienced at making decisions that can either stabilize or cripple military families.

The goal of the program is to get military families to commit to feasible financial goals that help them create a more stable home life.

Some of the goals Military Saves sets for its members include:
  • Develop a personal financial plan
  • Establish a good credit record
  • Start a savings account for emergencies
  • Open a retirement savings account
  • Save for a car

All four DoD Services (Army, Air Force, Marine Corps, and Navy), as well as the Coast Guard and the National Guard Bureau, have participated in the campaign, enrolling more than 200,000 military members and their families since 2007.

Each year, more than 400 military installations and command centers, plus 113 financial institutions and 110 organizations participate in Military Saves Week, the last week of February. The campaign enrolled a record 33,000 pledges in 2015.

Student Loan Repayment Choices for Military

There are several options available for active duty military personnel with student loans.

Servicemembers qualify for deferment on any federal loans while serving active duty or performing National Guard duty during a war, military operation or national emergency. It applies to direct loans, Federal Family Education (FFEL) Loans and Perkins loans.

Deferment halts payments while they are on active duty. There is no time limit on the military deferment. It does not end until six months after the servicemember is released from active duty.

Members of the military can petition their schools for up to a three-year grace periods or seek forbearance. Loan holders can also waive collection actions on servicemembers, who inform them of their military obligations.

Servicemembers could include their time in the military as part of the Public Service Loan Forgiveness Program (PSLFP). The PSLFP fully discharges what’s left of your federal student loan, if you put in 10 years in either the military or public service or some combination of both. You must make on-time payments for your student loan during those 10 years.

The 10 years of on-time payments could be made as part of the Standard Repayment Program, the Income Based Repayment (IBR) program, the Income Contingent Program (ICP) or Pay As You Earn (PAYE) program. Only payments made after Oct. 1, 2007 count.

The IBR, ICP and PAYE programs base monthly payments on amounts earned and family size, which could be the best choices for members of the military.

It should be noted that the PSLFP applies only to federal loans, not private student loans.

Troops stationed in hostile fire areas do not have to pay interest on their student loans for five years. If they are injured, they could have all of their federal student loans discharged.

The National Guard pays up to $7,500 a year on student loans for members who enlist at least six years and meet other requirements. The maximum benefit is $50,000.

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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